Research Discussion Papers, Bank of Finland
No 14/2006:
Open market operations: beyond the new consensus
Jan Toporowski ()
Abstract: The emergence of the New Consensus in monetary policy has
been followed by a renewal of interest in central banks’ operating
procedures, and specifically in the role of open market operations. There
is a general view that overnight interest rates are most effectively
controlled by standing or discount window facilities, rather than open
market operations, and this view will probably now extend also to
lender-of-last-resort intervention. The paper argues that this reduced role
for open market operations is only in the context of controlling overnight
rates of interest. In spite of the emphasis on control of overnight
interest rates, medium and long-term interest rates remain the crucial
instruments in the monetary transmission mechanism. Longer-term interest
rates are susceptible to influence by open market operations, and their
importance grows with financial development.
Keywords: central banks; monetary policy; open market operations; (follow links to similar papers)
JEL-Codes: E52; E58; (follow links to similar papers)
38 pages, June 21, 2006
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