Monetary Policy Operating Procedures in Industrial Countries

Abstract

In recent years monetary policy operating procedures have continued to evolve in the light of changes in the structure and workings of financial markets as well as in the broader economic and political environment. Since the mid-1980s, central banks have further strengthened the market-orientation of policy implementation, cut reserve requirements, widened the range of available instruments, increased the flexibility of liquidity management, sharpened the focus on interest rates as operating targets, improved the transparency of policy signals and shortened the maturity of interest rates serving as the fulcrum of policy. While these trends have resulted to some extent in a continuation of the process of convergence dating back to at least the 1970s, significant differences still exist across countries. This paper reviews current monetary policy implementation procedures within a common framework in order to highlight similarities and remaining differences across countries. It also provides some information about their evolution in recent years and suggests possible explanations for the main forces underlying the observed changes.