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MONETARY POLICY IMPLEMENTATION FRAMEWORKS: A COMPARATIVE ANALYSIS
Published online by Cambridge University Press: 22 December 2010
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.
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- Articles
- Information
- Macroeconomic Dynamics , Volume 15 , Supplement S1: Money, Credit, and Liquidity: Part 1 , April 2011 , pp. 145 - 189
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- Copyright © Cambridge University Press 2010
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