Monetary Policy Operations and the Financial System by Ulrich Bindseil

Monetary Policy Operations and the Financial System

byUlrich Bindseil

Hardcover | October 2, 2014

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Since 2007, central banks of industrialized countries have counteracted financial instability, recession, and deflationary risks with unprecedented monetary policy operations. While generally regarded as successful, these measures also led to an exceptional increase in the size of central bankbalance sheets. The book first introduces the subject by explaining monetary policy operations in normal times, including the key instruments (open market operations, standing facilities, reserve requirements, and the collateral framework). Second, the book reviews the basic mechanics of financialcrises as they have hit economies many times. The book then explains what central banks need to do to when financial markets and banks are impaired to fulfil their monetary policy and financial stability mandates. Besides demonstrating the need for non-conventional monetary policy measures, the bookalso highlights their dangers, such as moral hazard and increased central bank risk taking. The book draws a number of lessons from the crisis on non-conventional monetary policy operations, assessing what measures have worked well, and how a framework should be designed in future normal times suchas to contribute to make financial crises less likely. Central bank monetary policy operations have traditionally been considered as a matter of practice, while the macroeconomic modelling of the transmission mechanism of monetary policy is regarded as a discipline relying on substantial theory ("monetary economics"). However, monetary policy operationscan equally benefit from a theory, and from a normative framework to guide policy choices. The limited interest that monetary policy operations have found for many decades in academic economics may well have contributed to the many misunderstandings on central bank actions over recent years. Thisbook provides a basis for a better theoretical understanding of real-world monetary policy operations.

About The Author

After his studies, Ulrich Bindseil joined the Deutsche Bundesbank's economics department in 1994. In 1997, he moved on to the European Monetary Institute and to the European Central bank in 1998. There, he was subsequently responsible for the Liquidity Management Section, the Risk Management Division, and finally for the Directorate G...
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Details & Specs

Title:Monetary Policy Operations and the Financial SystemFormat:HardcoverDimensions:352 pagesPublished:October 2, 2014Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0198716907

ISBN - 13:9780198716907

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Table of Contents

Introduction and OverviewPart I: Monetary Policy Operations in Normal Times1. Basic Terminology and the Relationship to Monetary Macroeconomics2. Representing Monetary Policy Operations in Financial Accounts3. Operational Target of Monetary Policy4. Three Basic Approaches to Monetary Policy Implementation5. Several Liquidity Shocks, Averaging, and the Martingale Property of Overnight Rates6. Standing Facilities and the Interest Rate Corridor7. Open Market Operations in Normal Times8. Reserve Requirements9. Collateral10. Optimal Monetary Policy Operations in Normal TimesPart II: Monetary Policy in Times of Crises11. The Mechanics of Liquidity Crises12. The Role of Collateral Availability for Monetary Policy13. Open Market Operations and Standing Facilities14. The Central Bank as Lender of Last Resort (LOLR)15. LOLR and Central Bank Risk Taking16. LOLR, Moral Hazard, and Incentives17. The International Lender of Last Resort18. Optimal Monetary Policy Implementation in Crisis Times