The Concrete Euro Implementing Monetary

The euro area's framework for monetary policy implementation was introduced in 1999. Eleven years on, this volume examines the theoretical and historical underpinnings of the framework, how it has fared in practice, and what challenges it is likely to fac

Paul Mercier is Adviser to the Board of the Banque Centrale du Luxembourg and Visiting Professor at the University of Szeged, Hungary. Before joining the BCL in September 2012, he was Principal Adviser in the Directorate General Market Operations at the European Central Bank after having served as Deputy Director General for 11 years. He also worked for the National Bank of Belgium (1980 -1985 and 1989 -1994), the European Commission (1985 -1988), and the European Monetary Institute (1994-1998) where he was chairman of the taskforce that delivered the specification of the monetary policy implementation framework adopted by the ECB in 1999. For thirteen years (1982 - 1995), he was a Professor of Economics at the Faculty of Law of the University Saint Louis in Brussels (1982-1995).

Francesco Papadia is Director General for Market Operations of the European Central Bank. He previously held a position at the Banca d'Italia and acted as an economic advisor to the EU Commission.

List of Figures	p. xxiii
List of Tables	p. xxvii
List of Contributors	p. xxix
Introduction	p. 1
An ambitious endeavour	p. 1
Words and facts	p. 2
An appropriate monetary technology?	p. 2
The plan of the book	p. 3
Theory of monetary policy implementation	p. 5
Introduction	p. 5
Representing monetary policy implementation in a closed system of financial accounts	p. 10
The short-term interest rate as the operational target of monetary policy	p. 14
Three basic techniques to control short-term interest rates	p. 17
A disaggregate model of liquidity	p. 25
A model with several autonomous factor shocks and interbank trading sessions	p. 32
Efficient frameworks for monetary policy implementation	p. 38
Standing facilities providing buffers against autonomous factor shocks	p. 43
Collateral for central bank refinancing operations	p. 50
The nature of a liquidity crisis	p. 60
Steering the short-term interest rate in a financial crisis	p. 72
Adapting open market operations technique and standing facilities in a financial crisis	p. 76
Funding liquidity support to banks and central bank risk-taking	p. 85
Outright purchases of financial assets in financial crises	p. 98
Conclusions: The theory of monetary policy implementation in normal and crisis times	p. 107
Annex: Notation used in Chapter 1	p. 107
The story of the Eurosystem framework	p. 115
The institutional foundation	p. 116
The operational frameworks of national central banks	p. 128
Basic conditions and guiding principles	p. 136
Open market operations and standing facilities	p. 148
Reserve requirements	p. 162
Counterparties	p. 170
Collateral	p. 174
Liquidity management	p. 191
The supporting infrastructure	p. 193
The final preparations and the resulting framework	p. 197
The Monetary Policy Framework in 1999	p. 198
Comparison with other operational frameworks	p. 211
Functioning of the Eurosystem framework since 1999	p. 215
An overview	p. 215
Instruments	p. 236
Balance sheet	p. 246
Collateral and counterparty policy	p. 261
Communication and credibility in liquidity management	p. 277
Precision of monetary policy implementation	p. 285
Behaviour of the term risk premia during the crisis	p. 298
The quantitative perspective	p. 305
Auction procedures	p. 315
Relationships with the interbank money market	p. 331
Challenges for the next decade of monetary policy implementation	p. 343
Introduction	p. 343
What should the operational objectives of the central bank be?	p. 344
Paradigms for controlling interest rates	p. 347
A broad or a narrow monetary policy implementation technology?	p. 353
A conclusion	p. 365
Index	p. 367
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The Concrete Euro Implementing Monetary Policy in the Euro Area

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