Open Mouth Operations

Posted: 6 Nov 2001

See all articles by Graeme Guthrie

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Julian Wright

National University of Singapore (NUS) - Department of Economics

Abstract

This paper explains how central bank statements, rather than open market operations, can be used to implement monetary policy. In the extreme, policy instruments can be held constant, and yet interest rates will evolve along the path desired by the central bank. We show how the recent implementation of monetary policy in New Zealand works in this way. Using announcement data from New Zealand, we find that open mouth operations lead to large changes in interest rates across all maturities, and these changes cannot be explained by open market operations. Implications are drawn for monetary policy in other jurisdictions.

Keywords: Monetary policy, Open market operations, Announcements, Liquidity effect

JEL Classification: E42, E52, E58

Suggested Citation

Guthrie, Graeme and Wright, Julian, Open Mouth Operations. Available at SSRN: https://ssrn.com/abstract=251905

Graeme Guthrie (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand

HOME PAGE: http://sites.google.com/view/graemeguthrie

Julian Wright

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

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