Monetary policy implementation: Misconceptions and their consequences

Piti Disyatat ()

No 269, BIS Working Papers from Bank for International Settlements

Abstract: Despite constituting the very heart of the monetary transmission mechanism, widespread misconceptions still exist regarding how monetary policy is implemented. This paper highlights the key misconceptions in this regard and shows how they have compromised the understanding of important aspects of the monetary transmission mechanism. In particular, the misplaced emphasis on open market operations as the means through which monetary policy is implemented can give rise to inappropriate characterizations of monetary policy, as well as to ill-defined discussions of liquidity effects, the bank lending channel, and sterilized exchange rate intervention.

Keywords: Monetary policy implementation; transmission mechanism; interest rates; money; liquidity effect; bank lending channel; sterilized intervention (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2008-12
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