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Why Do Central Banks Make Public Announcements of Open Market Operations?

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  • Narayan Bulusu

Abstract

Central banks make public the results of open market operations (OMOs), which they use to adjust the liquidity available to the financial system to maintain the short-term borrowing rate in the range compatible with achieving their monetary policy objectives. This paper shows that such announcements are costly because they moderate the impact of changes in supply achieved through OMOs. Nevertheless, communication of OMOs is desirable because it improves the transparency of the funding market, which makes the price of liquidity—a key input into economic decision making—more reflective of underlying demand and supply of liquidity.

Suggested Citation

  • Narayan Bulusu, 2020. "Why Do Central Banks Make Public Announcements of Open Market Operations?," Staff Working Papers 20-35, Bank of Canada.
    • Handle: RePEc:bca:bocawp:20-35
    DOI: 10.34989/swp-2020-35
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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