 Monetary policy implementation: Which “new normal”?Journal of International Money and Finance, 2024, vol. 141, issue C Abstract: This article provides a simple model of monetary policy implementation, analyzing both the interest rate steering (IRS) and the quantitative easing (QE) policies. The model shows that the “floor system”, introduced with QE policies, is preferable to the traditional “corridor system”, for two reasons. First, it endows central banks with one more degree of freedom, since the interest rate and the balance sheet policies become two independent instruments. Second, it enhances the ability of central banks to keep the money market rates in line with their target level. This second prediction is confirmed by an empirical analysis of the money market in the euro area. Therefore, in the “new normal” monetary policy should be implemented by steering the level of interest rates within a floor system, instead of relying on the corridor system used in the old IRS framework.11I wish to thank the Reviewer and the Editor for their very useful comments on a previous version of this article. Keywords: Operational framework; Interest rate steering; Quantitative easing; Corridor system; Floor system (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:141:y:2024:i:c:s0261560623001997 DOI: 10.1016/j.jimonfin.2023.102998 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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