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Standard Elements of a Monetary Policy Implementation Framework
In the minutes of the July 2015 Federal Open Market Committee (FOMC) meeting, the chair indicated that Federal Reserve staff would undertake an extended effort to evaluate potential long-run monetary policy implementation frameworks. But what is a central bank?s monetary policy implementation framework? In a series of four posts, we provide an overview of the key elements that typically constitute such a framework.
Counterparties and Collateral Requirements for Implementing Monetary Policy
What types of counterparties can borrow from or lend to a central bank, and what kind of collateral must they possess in order to receive a loan? These are two key aspects of a central bank?s monetary policy implementation framework. Since at least the nineteenth century, it has been understood that an important role of central banks is to lend to solvent but illiquid institutions, particularly during a crisis, as this provides liquidity insurance to the financial system. They also provide liquidity to markets during normal times as a means to implement monetary policy. Central banks that ...
What Is the Composition of Central Bank Balance Sheets in Normal Times?
There has been unusually high activity on central banks? balance sheets in recent years. This activity, which has expanded beyond the core operations and collateral of the central bank, has been called ?unconventional,? ?nonstandard,? ?nontraditional,? and ?active.? But what constitutes a normal central bank balance sheet? How does central bank asset and liability composition vary across countries and how did the crisis change this composition? In this post, we focus on the main characteristics of central bank balance sheets before the crisis. In our next piece, we describe how this ...
How Do Central Bank Balance Sheets Change in Times of Crisis?
The 2007-09 financial crisis, and the monetary policy response to it, have greatly increased the size of central bank balance sheets around the world. These changes were not always well understood and some were controversial. We discuss these crisis-induced changes, following yesterday?s post on the composition of central bank balance sheets in normal times, and explain the policy intentions behind some of them.