What is the Role of the Monetary Base in Monetary Policy Today?
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What is the Role of the Monetary Base in Monetary Policy Today?
Credit and Capital Markets – Kredit und Kapital, Vol. 37 (2004), Iss. 2 : pp. 169–201
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Mika Poso, Frankfurt/M.
Livio Stracca, Frankfurt/M.
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Abstract
What is the Role of the Monetary Base in Monetary Policy Today?
This paper provides a selective and up-to-date review of the literature on the possible roles of the monetary base in monetary policy. The paper emphasises that, while the monetary base lies at the core of central banking and is the ultimate instrument allowing central banks to exert influence over interest rates and ultimately over macroeconomic conditions, it has seldom played a significant role in formulating and implementing monetary policy. In particular, the monetary base has very seldom been used as a sole operational target and the experience with the monetary base as an intermediate target is also rather limited. Today, for most central banks the monetary base appears to be at most an information variable. However, the debate over monetary policy when interest rates hit the zero bound and some recent theoretical advances have recently revived the academic and policy interest in the monetary base. (JEL E51, E52, E58)