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Monetary policy implementation: Misconceptions and their consequences

Listed author(s):
  • Piti Disyatat

Despite constituting the very heart of the monetary transmission mechanism, widespread misconceptions still exist regarding how monetary policy is implemented. This paper highlights the key misconceptions in this regard and shows how they have compromised the understanding of important aspects of the monetary transmission mechanism. In particular, the misplaced emphasis on open market operations as the means through which monetary policy is implemented can give rise to inappropriate characterizations of monetary policy, as well as to ill-defined discussions of liquidity effects, the bank lending channel, and sterilized exchange rate intervention.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 269.

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Length: 28 pages
Date of creation: Dec 2008
Handle: RePEc:bis:biswps:269
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