S A M P L E CONTENTS FOREWORD INTRODUCTION The operation of monetary policy .................................................................................... 15 The money market and its impact on the economy ................................................. 15 Central banks’ influence on the money supply and interest rates ............................ 16 Mechanism of transmission monetary policy ........................................................... 17 Why inflation targets? ..................................................................................................... 20 The trilemma of open economies ................................................................................... 21 Summary ........................................................................................................................ 23 NORTH AMERICA Canada The Bank of Canada ....................................................................................................... 27 Objectives of monetary policy ......................................................................................... 27 Factors guiding monetary policy ..................................................................................... 27 Monetary policy application methods .............................................................................. 27 Instruments used by the Bank of Canada ....................................................................... 28 Deposit and lending standing facilities ...................................................................... 28 Auction of federal government deposits ................................................................... 29 Special purchase and resale agreements ................................................................ 29 Repurchase and sale agreements............................................................................ 29 Operations on the foreign exchange market ............................................................ 29 Key interest rates ............................................................................................................ 29 Overnight rate ........................................................................................................... 29 Target for the overnightS A rate ...................................................................................... M P L E 30 Official bank rate ....................................................................................................... 30 Rate for the standing deposit facility ......................................................................... 30 Principal publications to watch ........................................................................................ 30 United States The U.S. Federal Reserve .............................................................................................. 31 Objectives of monetary policy ......................................................................................... 31 Factors guiding monetary policy ..................................................................................... 31 Monetary policy application methods .............................................................................. 31 Instruments used by the U.S. Federal Reserve .............................................................. 31 Purchase and resale and sale and repurchase agreements .................................... 32 Purchase and sale of government securities ........................................................... 32 Reserve requirements .............................................................................................. 33 Operations on the foreign exchange market ............................................................ 33 5 Key interest rates ............................................................................................................ 33 Effective federal funds rate ....................................................................................... 33 Target for the federal funds rate ................................................................................ 33 Discount rate (primary rate) ...................................................................................... 33 Principal publications to watch ........................................................................................ 34 Mexico The Bank of Mexico ......................................................................................................... 35 Objectives of monetary policy ......................................................................................... 35 Factors guiding monetary policy ..................................................................................... 35 Monetary policy application methods .............................................................................. 35 Instruments used by the Bank of Mexico ........................................................................ 36 Aggregate short depositor balances—Corto ............................................................ 36 Purchase and resale and sale and repurchase agreements .................................... 37 Purchase or sale of certificates issued by the Bank or of government securities ...................................................................................... 37 Reserve requirements .............................................................................................. 37 Operations on the foreign exchange market ............................................................ 37 Key interest rates ............................................................................................................ 37 Interbank overnight funds rate .................................................................................. 37 28-day Cetes rate ..................................................................................................... 38 Principal publications to watch ........................................................................................ 38 SOUTH AMERICA Argentina The Central Bank of the Republic of Argentina ............................................................... 41 Objectives of monetary policy ......................................................................................... 41 Factors guiding monetary policy ..................................................................................... 41 Monetary policy applicationS A methods M .............................................................................. P L E 41 Instruments used by the Central Bank of the Republic of Argentina ............................... 42 Repurchase and reverse repurchase agreements .................................................. 42 Security issues ......................................................................................................... 42 Purchase and sale of government securities ........................................................... 42 Reserve requirements .............................................................................................. 42 Operations on the foreign exchange market ............................................................ 42 Key interest rates ............................................................................................................ 42 Rate on seven-day reverse repurchase agreements ............................................... 42 Rate on seven-day repurchase agreements ............................................................ 42 Principal publications to watch........................................................................................ 43 6 Brazil The Central Bank of Brazil .............................................................................................. 44 Objectives of monetary policy ......................................................................................... 44 Factors guiding monetary policy ..................................................................................... 44 Monetary policy application methods .............................................................................. 44 Instruments used by the Central Bank of Brazil.............................................................. 44 Repurchase and reverse repurchase agreements .................................................. 45 Purchase and sale of government securities (National Treasury Bills) ................... 45 Foreign currency swaps............................................................................................ 45 Reserve requirements .............................................................................................. 45 Operations on the foreign exchange market ............................................................ 45 Key interest rates ............................................................................................................ 46 SELIC overnight rate (Sistema Especial de Liquidação e Custódia) ....................... 46 Target for the SELIC overnight rate .......................................................................... 46 Principal publications to watch ........................................................................................ 46 EUROPE Euro zone The European Central Bank ............................................................................................ 49 Objectives of monetary policy ........................................................................................