Abstract

Monetary policy at the strategic level has undergone significant changes over the years; so has its day-to-day implementation. This chapter presents a snapshot of 17 central banks' monetary operating frameworks as of early 2007, and discusses their major developments over the preceding decade. It finds that although some common themes and practices can be identified, there is no unique “best” way to implement monetary policy. Central banks everywhere have continued to refine their operating frameworks and procedures and to innovate where necessary, responding to changing needs in changing times.

Introduction

At the strategic level, monetary policy has undergone significant changes over the years. Exchange rate pegs or bands, monetary aggregate targets, and inflation targets have at different times gained favor as the mainstream intermediate objective of monetary policy. At the tactical (or operational) level, the day-to-day implementation of monetary policy has also evolved, driven in part by the changing views about the preferred intermediate targets, and in part by the changes in the broader banking and financial systems both at home and abroad.

This operational evolution has been less popular as a subject of academic research than its strategic counterpart, but has nonetheless been examined by specialists in the central banking community. Kneeshaw and Van den Bergh (1989) and Borio (1997) document the migration of industrial economy central banks in the 1980s and early 1990s, respectively, toward what we now consider mainstream operating frameworks. Van 't dack (1999) observes a similar process among emerging market economies in the 1990s.