The Operational Target of Monetary Policy and the Rise and Fall of Reserve Position Doctrine

46 Pages Posted: 3 Dec 2004

Date Written: June 2004

Abstract

Before 1914, there was little doubt that central bank policy meant first of all control of short term interest rates. This changed dramatically in the early 1920s with the birth of reserve position doctrine (RPD) in the US, according to which a central bank should, via open market operation, steer some reserve concept, which would impact via the money multiplier on monetary aggregates and ultimate goals. While the Fed returned to an unambiguous steering of short term interest rates only in the 1990s, for example the Bank of England never adopted RPD. This paper explains the astonishing rise and fall of RPD. The endurance of RPD is explained by a symbiosis of central bankers who may have partially sympathised with RPD since it masked their responsibility for short term interest rates, and academics who were too eager to simplify away some key features of money markets and central bank operations.

Keywords: operational target of monetary policy, monetary policy instruments, monetary policy implementation, instruments' choice problem

JEL Classification: E43, E52, B22

Suggested Citation

Bindseil, Ulrich, The Operational Target of Monetary Policy and the Rise and Fall of Reserve Position Doctrine (June 2004). Available at SSRN: https://ssrn.com/abstract=533132

Ulrich Bindseil (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
459
Abstract Views
3,078
rank
74,732
PlumX Metrics