Central bank tools and liquidity shortages

Bank for International Settlements researchers Stephen Cecchetti and Piti Disyatat consider the implications of recent financial developments for the “lender-of-last-resort” function of central banks and whether traditional policymaking tools remain effective in the face of modern liquidity crises. Presented at "Central Bank Liquidity Tools and Perspectives on Regulatory Reform" a conference sponsored by the Federal Reserve Bank of New York, February 19-20, 2009.Banks and banking, Central ; Liquidity (Economics) ; Bank liquidity ; Bank reserves ; Systemic risk ; Financial crises

Monetary policy implementation: Misconceptions and their consequences

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.Monetary policy implementation, transmission mechanism, interest rates, money, liquidity effect, bank lending channel, sterilized intervention