MONETARY POLICY IMPLEMENTATION FRAMEWORKS: A COMPARATIVE ANALYSIS

Antoine Martin and Cyril Monnet

Macroeconomic Dynamics, 2011, vol. 15, issue S1, 145-189

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.

Date: 2011
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Working Paper: Monetary policy implementation frameworks: a comparative analysis (2009)
Working Paper: Monetary policy implementation frameworks: a comparative analysis (2008)
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