CCBS
Lecture Series Volume 4
Implementing Monetary Policy
By William A Allen
The purpose of the paper is to discuss how monetary policy decisions made by the board or monetary policy committee of a central bank can be implemented. It distinguishes between the polar extremes of direct and indirect methods of implementation, and explains why indirect methods are generally preferred. It describes the circumstances in which various elements of a central bank’s balance sheet can grow very quickly, threatening to cause the growth rate of central bank money to rise to levels inconsistent with the objectives of monetary policy, and discusses what offsetting measures the central bank can take to contain the growth of central bank money. It describes in detail how open market operations can be conducted, and discusses techniques of intervention in foreign exchange markets. Finally, it reviews the usefulness of direct controls of instruments of monetary policy, and discusses the conditions in which such controls might be needed and how they can best be designed.
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Implementing Monetary Policy |
