OXFORD UNIVERSITY PRESS

Transcription

1 Monetary Policy Operations and the Financial System ULRICH BINDSEIL OXFORD UNIVERSITY PRESS

2 Contents List offigures ListofTables List ofabbreviations ix xiv xv Introduction and Overview 1 Part I: Monetary Policy Operations in Normal Times 1. Basic Terminology and Relationship to Monetary Macroeconomics Key Concepts and Terminology Dichotomy Between Monetary Macroeconomics and Monetary Policy Implementation in Normal Times Representing Monetary Policy Operations in Financial Accounts Introduction to the Financial Accounts Model Deposit Shifts between Individual Banks and the Interbank Market Collateral Constraints Reserves of Banks with the Central Bank and Required Reserves Other Autonomous Factors and Types of Monetary Policy Operations Liquidity Deficit of the Banking System vis-ä-vis the Central Bank Credit Money Created by Banks The 'Real' Euro Area Financial Accounts Operational Target of Monetary Policy Concept of an Operational Target of Monetary Policy Short-term Rate as Operational Target of Monetary Policy Quantity-oriented Operational Targets of Monetary Policy in the Twentieth Century A Brief History Three Basic Techniques to Control Short-term Interest Rates One-directional Standing Facility-based Monetary Policy Implementation Symmetrie Corridor Approach with Open Market Operations Volume Set by the Central Bank Füll Allotment Open Market Operations within a Corridor Set by Standing Facilities 59

3 vi Contents 5. Several Liquidity Shocks, Averaging, and the Martingale Property of Overnight Rates ^2 5.1 Three Shocks and Three Trading Sessions on One Day Three-day Reserve Maintenance Period with Averaging Standing Facilities and the Interest Rate Corridor Types of Standing Facilities and History Optimal Width of the Corridor Set by Standing Facilities in the Symmetrie Corridor Approach Idea of a 'Target Rate Limited Access' (Taralac) Facility Open Market Operations in Normal Times Origins and History Open Market Operations as Determinants of the Monetary Policy Implementation Approach Tender Procedure for Credit Open Market Operations Liquidity-absorbing Open Market Operations Reserve Requirements Introduction Basic Specifications of Reserve Requirements Key Functions of Reserve Requirements (Including Historical) Collateral Importance of the Collateral Framework for Monetary Policy Implementation Logic of Establishing a Collateral Framework Risk Management Techniques Market Impact of the Collateral Framework and Collateral as Monetary Policy Instrument Segregation of Collateral Sets, Adverse Selection in Collateral Use, and Pricing Optimal Monetary Policy Operations Frameworks in Normal Times Hundred Ways to Skin a Cat Potential Objectives of the Design and Use of the Monetary Policy Implementation Framework Statements of Central Banks on their Objectives and Principles Four Examples of Frameworks Conclusions ^40

4 Contents vii Part II: Monetary Policy Operations in Times of Crisis 11. The Mechanics of Liquidity Crises Introduction Increased Credit Risk, Adverse Selection, and Funding Market Breakdown Bank Runs and Investor Strikes Increase of Margin Asset Liquidity in a Market Maker Model Asset Fire Sales Interaction Between Crisis Channels The Role of the Central Bank: Monetary Policy and LOLR Collateral Availability and Monetary Policy Collateral Scarcity and Effective Term Funding Costs of Banks Collateral Scarcity, Stigma, and the Control of the Overnight Rate The Asset Encumbrance Problem The Bank Run Problem and Central Bank Collateral Securities Lending Programmes by Central Banks Open Market Operations and Standing Facilities The Use and Width of the Standing Facilities Corridor Adjusting Credit Open Market Operations Outright Purchase Programmes Dangers of Too Accommodating Policies 228 Annex: Central Bank Balance Sheets during the Crisis The Central Bank as Lender of Last Resort (LOLR) The Nineteenth-century Heritage WhyShould Central Banks Be Lender of Last Resort? Central Bank Inertia and Beyond Emergency Liquidity Assistance as Special Type of LOLR LOLR and Central Bank Risk-Taking Exogenous Risk Endogenous Risk LOLR, Moral Hazard, and Liquidity Regulation Moral Hazard and Negative Externalities of Inadequate Bank Liquidity Management Liquidity Regulation A Framework with Financial Incentives against Disproportional Reliance on the Central Bank 275

5 viii Contents 17. The International Lender of Last Resort The Case of a Fixed Exchange Rate System Provision of Foreign Currency by Central Banks to Domestic Counterparties in Annex A: Current Account Transactions as Origin of Foreign Reserves 289 Annex B: TARGET2 Balances in the Euro Area Optimal Monetary Policy Operations in Crisis Times 294 References Index