Monetary Policy Implementation: Operational Issues for Countries with Evolving Monetary Policy Frameworks

58 Pages Posted: 28 Feb 2020

See all articles by Nils O. Maehle

Nils O. Maehle

International Monetary Fund (IMF)

Date Written: February 2020

Abstract

This paper discusses operational issues for countries that want to reform their monetary policy frameworks. It argues that stabilizing short-term interest rates on a day-to-day basis has significant advantages, and thus that short-term interest rates, not reserve money, in most cases should be the daily operating target, including for countries relying on a money targeting policy strategy. The paper discusses how a policy formulation framework based on monetary aggregates can be combined with an operational framework that ensures more stable and predictable short-term rates to enhance policy transmission. It also discusses how to best configure an interest-rate-based operational framework when markets are underdeveloped and liqudity management capacity is weak.

Keywords: Central banking and monetary issues, Bank rates, Financial crises, Financial instruments, Central bank operations, monetary policy operations, monetary targeting, monetary policy transmission, liqudity management, interest rate determination, WP, interbank, operational framework, excess reserve, short-term interest rate, policy stance

JEL Classification: E40, E42, E43, E5, E51, E52, E58, G21, E01, K2

Suggested Citation

Maehle, Nils O., Monetary Policy Implementation: Operational Issues for Countries with Evolving Monetary Policy Frameworks (February 2020). IMF Working Paper No. 20/26, Available at SSRN: https://ssrn.com/abstract=3545290

Nils O. Maehle (Contact Author)

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC 20431
United States

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