Monetary Policy Implementation: Exploring the 'New Normal' in Central Banking

✍ Scribed by Angelo Baglioni

• Publisher: Palgrave Macmillan
• Year: 2024
• Tongue: English
• Leaves: 274
• Category: Library

✦ Synopsis

This book addresses the implementation of monetary policy (MP) and focuses on the operations used by the central banks to implement their policies: the so-called operational framework of MP. The operational framework has become of paramount importance in the last fifteen years, due to the profound transformations taking place in this period. The financial crisis, started in August 2007, has rapidly changed the way in which MP is implemented around the world. Further, innovations have been introduced to address other crises in the following years: a new set of “unconventional” instruments have been adopted, like the large-scale purchases of private and government securities and the long-term refinancing operations. The balance sheets of central banks have increased by huge amounts. The recent surge of inflation has induced several central banks to exit those exceptional policies. However, instead of going back to the traditional “interest rate steering” approach, they are going towards a “new normal” that combines some features of that approach with others inherited from the “quantitative easing” experience. The book therefore addresses the following questions: Which are the common stylized patterns of the unconventional MP across the different countries? Did the economic profession work out a theoretical framework within which to place the unconventional MP? Which are the issues related to the exit strategy from unconventional MP? Which are the main features of the operational framework under the “new normal” approach? This book answers these questions by looking at the experiences of the European Central Bank, the Federal Reserve System alongside other central banks, and providing some original modelling and empirical evidence, which will be of interest to academics, researchers in banking and finance, policy makers, and practitioners in the financial industry.

✦ Table of Contents

Contents
List of Figures
List of Tables
1 Introduction
1.1 An Overview of the Book
2 The Literature on Monetary Policy Implementation
2.1 Introduction
2.2 The Debate on Normalization: Stay on the Floor or Get Up?
2.3 The Literature on Interest Rate Steering
2.4 Central Banks’ Publications
References
3 The Operational Framework of Monetary Policy: A Simple Model
3.1 Introduction
3.2 Interest Rate Steering and Corridor System
3.2.1 The Market for Bank Reserves
3.2.2 Demand for Bank Reserves
3.2.3 Supply of Bank Reserves
3.2.4 Money Market Equilibrium
3.2.5 Monetary Policy Implementation
3.3 Quantitative Easing and Floor System
3.3.1 The New Tools of Monetary Policy
3.3.2 The Floor System
3.3.3 Negative Interest Rate Policy
3.4 The New Normal
3.4.1 Exit Strategy and Normalization
3.4.2 Floor Versus Corridor Systems: A Comparison
3.4.3 Supply-Driven Versus Demand-Driven Floor Systems
3.5 The Transmission Channels of Monetary Policy
3.5.1 Interest Rate Channel
3.5.2 Bank Lending Channel
3.5.3 Asset Price Channel
3.5.4 Foreign Channel
3.6 Monetary Policy and Financial Stability
3.6.1 The Risk-Taking Channel
3.6.2 Exit from QE Policies and Side Effects on Banks
References
4 The European Central Bank: Twenty-five Years of Single Monetary Policy in the Euro Area
4.1 Introduction
4.2 The Strategy of the Ecb
4.2.1 The Primary Objective: Price Stability
4.2.2 The “Two-Pillar” Approach
4.2.3 The 2021 Strategy Review
4.3 The Traditional Operational Framework: Interest Rate Steering
4.4 The International Financial Crisis and the Enhanced Credit Support Measures
4.5 The Sovereign Debt Crisis and “Whatever It Takes”
4.6 Quantitative Easing and Negative Interest Rates
4.7 Exit Strategy and New Normal
4.7.1 The Exit from QE Policies
4.7.2 The New Normal
4.8 Institutional Issues Specific to the Euro Area
4.8.1 The Need to Preserve the Smooth Transmission of Monetary Policy
4.8.2 The Prohibition of Monetary Financing of the Public Sector
4.8.3 The Legal Controversy over the PSPP
4.8.4 TARGET Balances and Monetary Policy Operations
References
5 The Federal Reserve System from the Traditional Operating Framework to the New Normal
5.1 Introduction
5.2 The Organization of the Federal Reserve System
5.3 Dual Mandate and Strategy Review
5.3.1 The Fed’s Strategy Until 2020
5.3.2 The Strategy Review
5.4 The Operational Framework Before the Financial Crisis
5.5 QE and Interests on Reserves: The Two-Floor System
5.6 The Fed’s Unconventional Measures: 2007–2014
5.6.1 Credit Easing
5.6.2 Quantitative Easing
5.6.3 Operation Twist
5.6.4 Forward Guidance
5.7 Exit Strategy and Policy Normalization
5.7.1 The Exit from QE
5.7.2 The New Normal
5.8 The Reaction to the Pandemic Crisis
5.9 A New Round of Normalization
5.10 Normalization and Financial Stability: The 2023 Banking Crisis
References
6 Unconventional Monetary Policies in UK and Japan
6.1 Introduction
6.2 Bank of England: From QE to Normalization
6.3 Bank of Japan: QE with Yield Curve Control
References
7 Future Challenges: CBDC and Greening Monetary Policy
7.1 Introduction
7.2 Central Bank Digital Currency
7.2.1 What CBDC is? (and What Is Not?)
7.2.2 Why Introduce a CBDC?
7.2.3 The Implications of a CBDC for Monetary Policy
7.2.4 The Impact of a CBDC on the Banking Sector
7.2.5 Technical and Organizational Issues
7.2.6 National Initiatives
7.3 Greening Monetary Policy
7.3.1 Sustainable Finance and the Role of Public Policy
7.3.2 The Network for Greening the Financial System
7.3.3 The Ecb from Market Neutrality to Green Monetary Policy
References
Index