Hostname: page-component-7dd5485656-zlgnt Total loading time: 0 Render date: 2025-10-31T06:07:54.081Z Has data issue: false hasContentIssue false
  • English
  • Français

MONETARY POLICY IMPLEMENTATION FRAMEWORKS: A COMPARATIVE ANALYSIS

Published online by Cambridge University Press:  22 December 2010

Antoine Martin  and
Cyril Monnet
Antoine Martin
Affiliation:
Federal Reserve Bank of New York
Cyril Monnet*
Affiliation:
Federal Reserve Bank of Philadelphia
*
Address correspondence to: Cyril Monnet, Research Department, Federal Reserve Bank of Philadelphia, 10 Independence Mall, Philadelphia, PA 19106, USA; e-mail: cyril.monnet@gmail.com.
Get access Rights & Permissions [Opens in a new window]

Abstract

We compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, whereas the second framework relies only on open-market operations. We show that the Friedman rule cannot be implemented when the central bank uses standing facilities only. For a given rate of inflation, we show that standing facilities unambiguously achieve higher welfare than just conducting open-market operations. We conclude that elements of both frameworks should be combined. Also, our results suggest that any monetary policy implementation framework should remunerate both required and excess reserves.

Keywords

Monetary Policy ImplementationCorridor SystemStanding FacilitiesOpen-Market Operations

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Supplement S1: Money, Credit, and Liquidity: Part 1 , April 2011 , pp. 145 - 189
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Berentsen, Aleksander, Camera, Gabriele, and Waller, Christopher (2007) Money, credit and banking. Journal of Economic Theory 135 (1), 171–195.CrossRefGoogle Scholar
Berentsen, Aleksander and Monnet, Cyril (2008) Monetary policy in a channel system. Journal of Monetary Economics 55, 1067–1080.CrossRefGoogle Scholar
Chapman, James, Chiu, Jonathan, and Molico, Miguel (2009) Central Bank Haircut Policy. Mimeo, Bank of Canada.CrossRefGoogle Scholar
Diamond, Douglas and Dybvig, Philip (1983) Bank runs, deposit insurance and liquidity. Journal of Political Economy 91, 401–419.CrossRefGoogle Scholar
Edwards, Cheryl L. (1997) Open market operations in the 1990s. Federal Reserve Bulletin, 859–874.CrossRefGoogle Scholar
Ennis, Huberto and Weinberg, John (2007) Interest on reserves and daylight credit. Federal Reserve Bank of Richmond Economic Quarterly 93, 111–142.Google Scholar
Freeman, Scott (1996) The payment system, liquidity, and rediscounting. American Economic Review 86, 1126–1138.Google Scholar
Furfine, Craig (1999) The microstructure of the federal funds market. Financial Markets, Institutions, and Instruments 8, 24–44.CrossRefGoogle Scholar
Goodfriend, Marvin (2002) Interest on reserves and monetary policy. Federal Reserve Bank of New York Economic and Policy Review 8, 85–94.Google Scholar
Hamilton, James (1996) The daily market for federal funds. Journal of Political Economy 104, 26–56.CrossRefGoogle Scholar
Hartmann, Philipp, Manna, Miquele, and Manzanares, Andres (2001) The microstructure of the euro money market. Journal of International Money and Finance 20, 895–948.CrossRefGoogle Scholar
Holthausen, Cornelia, Monnet, Cyril, and Wurtz, Flemming (2007) Implementing Monetary Policy with No Reserve. Mimeo, European Central Bank.Google Scholar
Keister, Todd, Martin, Antoine, and McAndrews, James (2008) Divorcing money from monetary policy. Federal Reserve Bank of New York Economic Policy Review 14, 41–56.Google Scholar
Kocherlakota, Narayana (1998) Money is memory. Journal of Economic Theory 81, 232–251.CrossRefGoogle Scholar
Kocherlakota, Narayana (2003) Societal benefits of illiquid bonds. Journal of Economic Theory 108, 179–193.CrossRefGoogle Scholar
Koeppl, Thorsten, Monnet, Cyril, and Temzelides, Ted (2008) A dynamic model of settlement. Journal of Economic Theory 142, 233–246.CrossRefGoogle Scholar
Lagos, Ricardo and Wright, Randall (2005) A unified framework for monetary theory and policy analysis. Journal of Political Economy 113, 463–484.CrossRefGoogle Scholar
Martin, Antoine (2004) Optimal pricing of intraday liquidity. Journal of Monetary Economics 51, 401–424.CrossRefGoogle Scholar
Mattesini, Fabrizio, Monnet, Cyril, and Wright, Randall (2009) Banking: A Mechanism Design Approach. Working paper 09-26, Federal Reserve Bank of Philadelphia.CrossRefGoogle Scholar
Poole, William (1968) Commercial bank reserve management in a stochastic model: Implications for monetary policy. Journal of Finance 23, 769–791.CrossRefGoogle Scholar
Shi, Shouyong (2005) Nominal bonds and interest rates. International Economic Review 45, 579–612.CrossRefGoogle Scholar
Wallace, Neil (2001) Whither monetary economics? International Economic Review 42, 847–869.CrossRefGoogle Scholar
Whitesell, William (2006a) Interest rate channels and reserves. Journal of Monetary Economics 53, 1177–1195.CrossRefGoogle Scholar
Whitesell, William (2006b) Monetary policy Implementation without Averaging or Rate Corridors. Federal Reserve Board Financial and Economics Discussion Series 22.CrossRefGoogle Scholar
Woodford, Michael (2000) Monetary policy in a world without money. International Finance 3, 229–260.CrossRefGoogle Scholar