Open Market Operations & Effectiveness of Monetary Policy · Open Market Operations & Effectiveness...
Transcript of Open Market Operations & Effectiveness of Monetary Policy · Open Market Operations & Effectiveness...
Open Market Operations & Effectiveness
of Monetary Policy
To be presented to Bank of Thailand’s Symposium on
Monetary Policy in a New Environment3-4 July 2001
Outline
• How do ST interest rates pass through?
• Prepare for return of volatility
• Learn from past experiences of 8 DCs– Structural Issues
– Tactics
• Micro-Macro Linkages of MP– Effectiveness of MP =?
• Policy Implications
RW
HH
GOV
CorpBOT
Imports/Remittances
Exports
Tax
Saving
Interest/Wage/Salary
GDP
G
I
C
Dep Loan
Bond
Securitization
Liberalization
Fin Inst
Monetary Transmission MechanismFrederic S. Mishkin: J Ec Persp, Fall 95
• Interest rate channel– M => i => I => Y
• Exchange rate channel– M => i => E => NX => Y
• Asset price channels– M => Pe =>q=(Mk Pr/Repl Costs) => I => Y– M => Pe => Wealth => C => Y
• Credit channels– M => Bnk Dep => Bnk Loans => I => Y– M => Pe => Adv Sel&Moral Haz => L =>I => Y– M => i => Cash Flow => ASMH => L => I => Y– M => Pe => Fin Distress => C => Y
Trend in Reserve Requirements
90 96Australia 1.0 1.0Canada -- --France 0.5 - 5.5 0.5 - 1.0Germany 4.15 - 12.1 1.5 - 2.0Japan 0.125 - 2.5 0.05 - 1.3UK 0.45 0.35US 3.0 - 12.0 3.0 - 10.0
; NZ
Lower RR & r Insensitivity
Working
Balances
Money market rate
Reserves
D
D
∆r
End of maintenance period effects on r
Interest Rate Corridor
Working
Balances
Money market rate
Reserves
D
D
∆rDiscount
or Remunerated Dep
Reverse Repo, MSP
Lombard, O/D, Rediscout, Bank Rate
Fed Funds Rate, Tender, SONIA,
Call & Cash Rates
General Principles
• Active Liquidity Management
• Increased Uses of Signaling
• Prevalence of Interest rate Corridor
• Clarify signals; Prevent abuses; Discretionary
– ST rate varies from ‘target’ < 0.15%– Much Narrower than Corridor (0.5 - 2%)
Central Bank Balance SheetVaez-Zadeh (1991)
• FA (net)
• CG (net)
• Claims on Bk (gross)
• Curr in Circ
• Reserve Dep
• Other Item (net)
–Capital Acc.
Mb
Decomposition of Variance of Mb
M = NFA + NDCG + DCP + OTH
σσσσ2M = σσσσ2
F + σσσσ2G + σσσσ2
B + 2σσσσFG + 2σσσσGB + 2σσσσFB + [ 2σσσσFO + 2σσσσGO +2σσσσBO + σσσσ2
O ]
σσσσ2*M =σσσσ2
M - 2σσσσFG - 2σσσσGB - 2σσσσFB > σσσσ2M
OMO = - 2σσσσgp - 2σσσσfp - 2σσσσfgσσσσ2
m - 2σσσσgp - 2σσσσfp - 2σσσσfg
Accom.= σσσσ2m / σσσσ2*
m
IT Countries’ Accommodation
0.0
50.0
100.0
150.0
200.0
250.0
57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Thai Aus Can NZ UK
IT Countries’ AccommodationThai Aus Can NZ UKT A C N
0.0
20.0
40.0
60.0
80.0
100.0
120.0
57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
T T
T T
T
T
T
T
T
A
A
A
A
A
A
A
A
A
A
A
C
C
C
C
C
C
C
C
C
C CN
NN
N N
K
K
K
K
Non-IT AccommodationThai Fr Gr Jap US
UF JT G
0.0
20.0
40.0
60.0
80.0
100.0
120.0
57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
U
U
U
UU
U
U
UU
F
F
F
F
F
F
T
T
T
T
TT
T
TT
T
T
T
J
J
J
J J J
J
JJ J
J
G
G
G
G
G G
G
G
G
G
F
F
F
IT Mb Volatility36 per. Mov. Avg. (NZ) 36 per. Mov. Avg. (Thai) 36 per. Mov. Avg. (UK)36 per. Mov. Avg. (Can) 36 per. Mov. Avg. (Aus)
N TC A
0.0
5.0
10.0
15.0
20.0
25.0
30.0
57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
N
N
N
N
N
N
TT
T T
T
T
C C C C C
CC C
A AA A
A
AK
K
Non-IT Mb Volatility36 per. Mov. Avg. (Fr) 36 per. Mov. Avg. (Jap)F
UG
0
3
6
9
57 68 79 90
36 per. Mov. Avg. (Gr) 36 per. Mov. Avg. (US)
F F
F
F
F
F
F
F
F
F
U
U
U
UU
G G
G
G
G
G
J
J
JJ
J
J
J
J
JThai Mb Volatility vs Others
0.0
2.0
4.0
6.0
8.0
57 68 79 90
36 per.Mov . Avg. (Thai) 36 per.Mov . Avg. (Oth 8)
Monthly Mb movements
-100000
-80000
-60000
-40000
-20000
0
20000
40000
60000
80000
100000
13/2/1997
13/5/1997
13/8/1997
13/11/1997
13/2/1998
13/5/1998
13/8/1998
13/11/1998
13/2/1999
13/5/1999
13/8/1999
13/11/1999
13/2/2000
13/5/2000
13/8/2000
13/11/2000
13/2/2001
13/5/2001
/\MB(-22)0 1M-moving/\M(-22)million BAHT
IT r Volatility36 per. Mov. Avg. (Thai) 36 per. Mov. Avg. (NZ) 36 per. Mov. Avg. (Aus)
36 per. Mov. Avg. (Can) 36 per. Mov. Avg. (UK)
T N A
0.0
1.0
2.0
3.0
4.0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98
T
T
T T
T
T
TT
T
N
N
N
N
N
N
N N
NA
A
A
A
A
A
AA A
C
Non-IT r Volatility
0
0.5
1
1.5
2
2.5
3
57 68 79 90
36 per.Mov . Avg. (US) 36 per.Mov . Avg. (Fr ) 36 per.Mov . Avg. (Jap) 36 per.Mov . Avg. (Gr )U
U
U
U
U
U
U
UU
U
F
F
F
F
F
FF
J
J
J
J
J
J
J
J
JJ
J
J
G
GG
G
G
G
G
G
G
GG
General Trends
• Interest Rate Volatility Declined
• Monetary Base Volatility Increased
–Thai 2.5% below Others
• Monetary Accommodation rose
• Why Worry So Much about r-volatility ?
Daily Changes in r from RP14d Target
0
5
10
15
20
25
30
97
0
0.5
1
1.5
2
2.5
3
3.5
4
1-Day 14-Day 1-Day 14-Day
999800
Clear vs. Unclear Signals
1
1.5
2
2.5
3
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
A
BC
IT Correlation r & rl36 per. Mov. Avg. (Aus) 36 per. Mov. Avg. (Thai) 36 per. Mov. Avg. (UK)36 per. Mov. Avg. (NZ) 36 per. Mov. Avg. (Can)
A T
N
K
C
-1.2
-0.7
-0.2
0.3
0.8
1.3
57 68 79 90
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
A
AA
A A
A
A
T
T T
T
T
T
T
N
N NN
K
K
K
K
K KCC C C
C
Non- IT Correlation r & rl36 per. Mov. Avg. (Jap) 36 per. Mov. Avg. (Fr)
36 per. Mov. Avg. (Gr) 36 per. Mov. Avg. (US)
J F
UG
-1.2
-0.7
-0.2
0.3
0.8
1.3
57 68 79 90
J
J
J J J
J
J
J
J
F FF
F
F F
UU
U
U
UG G
G
G
GG
G
IT Correlation r & rd36 per. Mov. Avg. (Thai) 36 per. Mov. Avg. (Aus) 36 per. Mov. Avg. (UK)T A K
C N
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
36 per. Mov. Avg. (Can) 36 per. Mov. Avg. (NZ)
T
T
TT
T
T
A
A
A
A
A
A
K
K
KK
KC
C CC
CC
N
N NN
Non- IT Correlation r & rd36 per. Mov. Avg. (Jap) 36 per. Mov. Avg. (US) 36 per. Mov. Avg. (Gr)
J U G
-1.5
-1
-0.5
0
0.5
1
1.5
57 68 79 90
J
JJ
JJ
J
J
JU
UU U
U U
UG
G
G
GG
The Tail that can wag the Dog:A Qualification (Hardy 1997)
• Optimal interest rates =? Unknown• Limit intervention=>More info Acquisition
– Info => market prices => r Policy– Micro-management => Loss of Information
• Opt Intervention:– r stability vs. info efficiency– Some room for fluctuation
• Money Market Input => MPB
So, has Thai MP been effective?
• Correlations improving after crisis–ER Flexibility => independent MP
–Since 2000 => announce clear target:RP14d
• May be early to conclude
Policy Implications
• Market participants prepared for Mb volatility within limits
• More active liquidity management– r stability vs. discretion vs. moral hazard
• Place more emphasis on signaling– Standing Facility ~ safety valve &
– Confirm signals
• Possible magnitude 2.5% of Mb ~12.5 bB– Both injections & withdrawals: ST only
Benefits / Costs Analysis
• What does society gain?– More efficient money market => Sustain Grwth
• What do commercial banks gain?– More convenient ST liq adjustments
• What does the BOT gain?– Stronger transmission mechanisms
– More effective MP
Other Structural Issues
• Bond Market Development– Private Repo
• Prepare for RTGS & 24 Hrs Transactions
• Rapid speed of trans & Info assymmetry=>– Pre-Settlement Interbank Rounds
– Tendency towards O/N rates
• Specific structure ~ country specific
Sources of Mb Changes
-1000000
-800000
-600000
-400000
-200000
0
200000
400000
600000
800000
1000000
1200000
1/9/
1997
1/12
/199
7
1/3/
1998
1/6/
1998
1/9/
1998
1/12
/199
8
1/3/
1999
1/6/
1999
1/9/
1999
1/12
/199
9
1/3/
2000
1/6/
2000
1/9/
2000
1/12
/200
0
1/3/
2001
OTHERS CFI NFIDF_CR NFA NCG
SOURCES OF MONETARY BASE & THEIR MOVEMENTS
Daily Changes in ERB:Yen B:USD Euro /\B/Y /\B/$ /\Euro
0
10
20
30
40
50
60
97
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
98 99 00 01
The Mechanics of Money Multiplier
BBL
TFB
Oth FIs
100 Baht
90 Baht
81 B
72.9 B
Multiplier ~ 10 @
Reserve /M
b Ratios (IT
)
0 10 20 30 40 50 60 70 80
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
AU
SC
AN
NZ
UK
Reserve/M
b Ratios (N
on-IT)
FR
GR
JP
0 10 20 30 40 50 60
1957195819591960196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999
US
Reserve/M
b Ratio (T
hailand)T
HA
ILAN
D:R
eserves/Moetary
base
0 5 10 15 20 25 30 35 40 45 50
196019611962196319641965196619671968196919701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
5358
6368
7378
8388
9398
Thai
Avg22
WghtA
vg22
JapS
ing
Com
parison of Monetary B
ase Grow
th Rates (M
A5Y
rs)