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Monetary Policy Operations and the Financial System$
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Ulrich Bindseil

Print publication date: 2014

Print ISBN-13: 9780198716907

Published to Oxford Scholarship Online: October 2014

DOI: 10.1093/acprof:oso/9780198716907.001.0001

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Three Basic Techniques to Control Short-term Interest Rates

Three Basic Techniques to Control Short-term Interest Rates

(p.51) 4 Three Basic Techniques to Control Short-term Interest Rates
Monetary Policy Operations and the Financial System

Ulrich Bindseil

Oxford University Press

Using a financial accounts framework, and assuming that the interbank overnight rate was selected as operational target of monetary policy, this chapter explains three basic techniques of short-term interest rate control through the use of standing facilities and open market operations. One of the techniques is the symmetric corridor approach widely used by central banks before the crisis, while the two other approaches (one-directional standing facility-based and full-allotment open market operations) became (again) common after 2007. Interbank markets are assumed to work perfectly so as to allow a focus on aggregate reserve demand and supply. The role of autonomous liquidity factors is explained.

Keywords:   interest rate control, standing facilities, open market operations, interbank markets, symmetric corridor approach, autonomous liquidity factors

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