Alternative Central Bank Policies

Harland Wm. Whitmore

Chapter 16 in The World Economy, Population Growth, and the Global Ecosystem, 2007, pp 289-305 from Palgrave Macmillan

Abstract: Abstract A central bank may allow the interest rate in its country to vary, managing instead its monetary base through occasional open market operations, or it may allow its monetary base to vary, managing instead the country’s interest rate through continual adjustments in its holdings of domestic bonds. In addition, a central bank may allow the value of another country’s unit of account to fluctuate relative to its own unit of account, by adjusting its holdings of foreign bonds arbitrarily and occasionally without trying to maintain a particular exchange rate; or it may decide to manage the exchange rate between its unit of account and that of another country by continually buying and selling foreign bonds. Whether the central bank occasionally or continually trades foreign bonds, it may finance those trades either by allowing its monetary base to change or by sterilizing potential effects upon its monetary base by altering as well its holdings of domestic bonds in the direction opposite to its change in foreign bond holdings.

Date: 2007
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DOI: 10.1057/9780230607309_16

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