Informational Efficiency, Interest Rate Variability, and Central Bank Operations

Informational Efficiency, Interest Rate Variability, and Central Bank Operations
Author: International Monetary Fund
Publisher: International Monetary Fund
Total Pages: 27
Release: 1997-03-01
Genre: Business & Economics
ISBN: 1451844344

It is shown how the frequency of central bank intervention in financial markets can affect the incentives for economic agents to acquire information, which will be reflected in market prices and thus become available to policy makers. The optimal frequency of intervention, and therefore the optimal interest rate variability, will balance the desirability of attaining given operational targets against the benefits of encouraging informational efficiency. The ability of the central bank to send clear signals of its own intentions will also depend on market informational efficiency.

The Federal Reserve System Purposes and Functions

The Federal Reserve System Purposes and Functions
Author: Board of Governors of the Federal Reserve System
Publisher:
Total Pages: 0
Release: 2002
Genre: Banks and Banking
ISBN: 9780894991967

Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.

Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework

Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework
Author: Romain Lafarguette
Publisher: International Monetary Fund
Total Pages: 33
Release: 2021-02-12
Genre: Business & Economics
ISBN: 1513569406

This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.

Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance

Powering the Digital Economy: Opportunities and Risks of Artificial Intelligence in Finance
Author: El Bachir Boukherouaa
Publisher: International Monetary Fund
Total Pages: 35
Release: 2021-10-22
Genre: Business & Economics
ISBN: 1589063953

This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

Market Information and Signaling in Central Bank Operations, or, How Often Should a Central Bank Intervene?

Market Information and Signaling in Central Bank Operations, or, How Often Should a Central Bank Intervene?
Author: International Monetary Fund
Publisher: International Monetary Fund
Total Pages: 29
Release: 1997-03-01
Genre: Business & Economics
ISBN: 145184462X

A central bank must decide on the frequency with which it will conduct open market operations and the variability in short-term money market that it will allow. It is shown how the optimal operating procedure balances the value of attaining an immediate target and broadcasting the central bank’s intentions against the informational advantages to the central bank of allowing the free play of market forces to reveal more of the information available to market participants.

Monetary and Exchange System Reforms in China

Monetary and Exchange System Reforms in China
Author: Mr.Bernard Laurens
Publisher: International Monetary Fund
Total Pages: 108
Release: 1996-09-26
Genre: Business & Economics
ISBN: 9781557755629

In 1978, China embarked on a gradual but far-reaching reform of its economic system. This paper focuses on the achievements so far in reforming the financial sector, the legal framework for financial transactions, the payments system, and the monetary policy and foreign exchange system. It also analyzes the tasks ahead to achieve the goals set in these areas for the year 2000.

Central Bank Balances and Reserve Requirements

Central Bank Balances and Reserve Requirements
Author: Mr.Simon Gray
Publisher: International Monetary Fund
Total Pages: 57
Release: 2011-02-01
Genre: Business & Economics
ISBN: 1455217905

Most central banks oblige depository institutions to hold minimum reserves against their liabilities, predominantly in the form of balances at the central bank. The role of these reserve requirements has evolved significantly over time. The overlay of changing purposes and practices has the result that it is not always fully clear what the current purpose of reserve requirements is, and this necessarily complicates thinking about how a reserve regime should be structured. This paper describes three main purposes for reserve requirements - prudential, monetary control and liquidity management - and suggests best practice for the structure of a reserves regime. Finally, the paper illustrates current practices using a 2010 IMF survey of 121 central banks.

Monetary Policy Implementation

Monetary Policy Implementation
Author: Ulrich Bindseil
Publisher: OUP Oxford
Total Pages: 288
Release: 2004-12-02
Genre: Business & Economics
ISBN: 0191608475

The first of its kind, this book is entirely dedicated to the implementation of monetary policy. Monetary policy implementation has gone through tremendous changes over the last twenty years, which have witnessed the quiet end of 'reserve position doctrine' and the return of an explicit focus on short-term interest rates. Enthusiastically supported by Keynes and later by the monetarist school, reserve position doctrine was developed mainly by US central bankers and academics during the early 1920s, and at least in the US became the unchallenged dogma of monetary policy implementation for sixty years. The return of interest rate targeting also corresponds largely to the restoration of central banking principles established in the late 19th century. Providing a simple theory of monetary policy implementation, Bindseil goes on to explain the role of the three main instruments (open market operations, standing facilities, and reserve requirements) and reviews their use in the twentieth century. In closing, he summarizes current views on efficient monetary policy implementation.

IMF Staff papers

IMF Staff papers
Author: International Monetary Fund. Research Dept.
Publisher: International Monetary Fund
Total Pages: 204
Release: 1997-01-01
Genre: Business & Economics
ISBN: 1451930968

This paper deals with liberalization and the evolution of output during the transition from plan to market. It explains why strong liberalization leads to a comparatively steep fall in output early in the transition, but a relatively strong recovery later on. Because it takes time to restructure the capital stock inherited from the old system, liberalization initially leads to transitional unemployment of capital and the contraction of the old enterprise sector. By making room quickly for the new, more efficient enterprises, however, liberalization also sets the stage for recovery and a much higher level of income in the medium term. [JEL E23, P21, P27, P52]