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

Bank of Canada Staff Working Paper No. 2020-35

59 Pages Posted: 11 Nov 2020

Date Written: August 31, 2020

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.

Keywords: Monetary policy implementation, Central bank communication

JEL Classification: D52, E58, G21

Suggested Citation

Bulusu, Narayan, Why Do Central Banks Make Public Announcements of Open Market Operations? (August 31, 2020). Bank of Canada Staff Working Paper No. 2020-35, Available at SSRN: https://ssrn.com/abstract=3690452 or http://dx.doi.org/10.2139/ssrn.3690452

Narayan Bulusu (Contact Author)

Bank of Canada ( email )

234 Wellington St.
Ottawa, Ontario K1A 0G9
Canada

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