Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 669: The Interplay between Money Market Development and Changes in Monetary Policy Operations in Small European Countries, 1980–2000

Jens Forssbaeck () and Lars Oxelheim ()
Additional contact information
Jens Forssbaeck: Lund Institute of Economics Research, Postal: P.O. Box 7080, SE-220 07 Lund, Sweden
Lars Oxelheim: Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We study the interplay between money market development and changes in monetary policy operating procedures in 11 European countries from c. 1980 up to the launch of EMU. Aspects of money market development such as the size and structure of different market segments, and institutional and regulatory changes, are addressed. We recount and empirically examine the extent of reorientation of monetary policy instruments away from quantitative direct control instruments toward indirect market-based instruments. The process of financial deregulation is uniform across the countries. The path of money market development varies substantially, whereas changes in central bank instruments show both similarities and differences. We hypothesise a relationship between the two processes and provide tentative evidence.

Keywords: Monetary policy operations; Money market; European Union; Deregulation

JEL-codes: E52; E58; G28; N24

53 pages, September 22, 2006

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