Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2007/10: Monetary policy implementation: A European Perspective

Ulrich Bindseil () and Kjell G. Nyborg ()
Additional contact information
Ulrich Bindseil: European Central Bank, Germany, Postal: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Kjell G. Nyborg: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: Monetary policy implementation is one of the most significant areas of interaction between central banking and financial markets. Historically, how this interaction takes place has been viewed as having an important impact on the ultimate objective of monetary policy, for example price stability or stimulating economic growth. In this article, we survey different approaches to monetary policy implementation. We cover briefly some of the historical trends, but give particular attention to the practice that is now (again) very common world-wide; namely, targeting short term interest rates. We discuss various ways this can be done and the implications for financial markets. We emphasize different European approaches, while also providing comparisons with the Fed.

Keywords: Monetary policy; short term interest rates; financial markets

JEL-codes: E52; G10

35 pages, March 27, 2007

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