Autumn
2006 Training Course/Seminar Series
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The Operating Framework For Monetary Policy – A Guide To Best Practice
4-day intensive residential programme, 5 - 8 September
2006
Venue: King’s College, Cambridge University
Course Director: Piero Ugolini, Former Assistant Director of the Monetary
and Foreign Exchange Operations Division, , International Monetary Fund
Course Adviser: Charles Goodhart, CBE, Professor Emeritus, London School
of Economics, Financial Markets Group
Details of how to register
are here
Dear
Delegate,
THE OPERATING FRAMEWORK FOR MONETARY POLICY – A GUIDE TO BEST PRACTICE
A central bank not only has to set monetary policy, but
must also successfully transmit its decisions to financial markets in
order to influence liquidity and interest rates throughout the economy.
The choice of operating framework has major consequences in addition to
influencing how effectively monetary policy is transmitted to the economy.
There are important implications for the efficiency, competitiveness and
development of the financial system, and also for financial stability.
Delegates who attend this residential course will be challenged to consider
carefully the design of their operating framework, with presentations
by expert speakers on the effects of different approaches and components,
and a top-level briefing on how leading institutions are reforming their
systems.
Some of the themes which will be addressed by the course include:
Operating frameworks: a comparison
A look at the advantages and disadvantages of competing approaches to
implementing monetary policy. Do different monetary policy objectives
require different approaches?
Relating the framework to economic circumstances
Economies at different stages of development and with differing financial
systems may require different
frameworks. How should the choice of framework depend on such factors,
and how can the framework
influence the development and quality of financial markets?
Effective implementation
Success requires not only the right framework, but also accurate liquidity
forecasting and efficient use of
monetary intervention techniques such as repos and swaps. How can effectiveness
be improved and
performance evaluated?
Delegates will be invited to consider these issues by a panel of expert
speakers, who will lead roundtable discussions. This confidential and
informal format allows participants to speak openly about their experiences
and benchmark their performance against that of their peers.
Who should attend:
Senior central bank officials with responsibility for market operations,
monetary policy and financial stability.
I look forward to welcoming you to Cambridge.
Yours sincerely,
William Clarke,
CBE, PhD Chairman
Introduction
and roundtable
Piero
Ugolini
Chairman
The course chairman will highlight
the main challenges facing central bank monetary operations and the
key requirements for a successful operating framework. Delegates will
then be invited to give a broad account of the main features of their
current systems and the specific challenges they expect to face or are
already facing in the conduct of monetary operations.
Reforming monetary operations
Roger
Clews
Special Adviser in the Markets
area, Bank of England
Central banks must be aware of the
need to constantly update their operating framework if they are to keep
up with market developments. But when preparing reforms it is important
to keep in mind what the ultimate objective is; should the focus be
on how rapidly and precisely interest rate decisions are transmitted
to markets, or are there financial stability and market competitiveness
considerations? The speaker, who has been closely involved with the
Bank of England’s wide-ranging reforms, will discuss the objective
of the changes and how the reform process and consultations with the
markets have been managed.
Anna Trzecinska
Head of Domestic Operations, National Bank of Poland
As their financial markets develop, becoming more liquid and sophisticated, central banks have the opportunity to update their operating framework and move to a more market-based system. Such a move is in fact essential if the development of financial markets is not to be stifled. This session will draw on the experiences of the speaker, who has been involved in monetary operations throughout Poland’s transition to a market economy. It will consider policy issues such as the sequencing of reforms, necessary preconditions, practical organisational issues for central banks, and the techniques and instruments commonly used in emerging-market environments.
Contributing to the development of financial markets
Robin McConnachie
International adviser to governments and public bodies
Central banks have a key role to play in supporting the development of financial markets, and their choice of operating framework has a major influence. Central banks not only need to promote the development of their financial markets, but must also ensure that they minimise market distortions and costs resulting from their actions. In some emerging-market countries, there are still many obstacles to money market development. The speaker, who for many years worked in this field both at the Bank of England and as chairman of the OECD working group on capital market development in emerging market countries, will ask how central bank operations can be managed with the aim of developing the inter-bank market in particular and financial markets more generally.
Workshop session: updating the operating framework
Piero Ugolini
Chairman
Following on from the morning’s sessions, participants will be split into groups and asked to consider questions relating to the interaction between the operating framework and financial markets in their country. In particular, the focus will be on identifying areas where there are problems and what actions the central bank can take to improve the implementation of policy and the performance of the money market.
Primary dealers
Piero Ugolini
Chairman
Monetary policy implementation usually uses government securities as one of or the principal instrument for repos and open market operations, and the structure and participants in this market are therefore of significant concern to the central bank. This session will examine the links between monetary policy and the government securities market, including the need for cooperation with the debt issuer. It will in particular focus on the contribution that primary dealers can make to the functioning and development of the market, and how central banks can work with and support primary dealers in their monetary operations.
Operational
implementation
Denis
Blenck
Head of Operations Analysis,
European Central Bank
Monetary operations under inflation targetting
Speaker from South African Reserve Bank (invited)
Adopting a policy of inflation targetting places many demands on a central bank, not least on the operating framework, which must be able to effectively transmit the policy decisions to financial markets and the economy as a whole. The speaker will discuss the preconditions to inflation targetting from an operational perspective, and how the monetary policy objective influenced SARB’s recent reforms to its money market operations. The session will also consider what lessons can be drawn by other emerging-market countries from the South African experience.
Liquidity forecasting
Katy Webster
Sterling Markets Division, Bank of England
The ability to accurately forecast movements in the central bank balance sheet and demand for central bank money is essential for accurately transmitting monetary policy and for maintaining stability and confidence in the money market. It requires the collection of accurate and timely data from a number of sources, making good inter-departmental and inter-agency cooperation vital. This session will look at the key features of a liquidity forecasting system, focusing on potential problem areas. It will also discuss the importance of measuring forecast errors and using them to improve the forecast process, as well as the question of whether forecasts should be published.
Sterilisation and coping with disruptive flows
Asbjorn Fidjestol
Director, Department for Market Operations and Analysis,
Norges Bank
Central banks may, at times, need to withdraw significant amounts of liquidity from markets, whether in order to sterilise foreign capital inflows, as a result of trade fluctuations, or in the aftermath of loose monetary policy. For central banks with weak balance sheets, this can be a costly and difficult process. The speaker will use the experiences of Norway in dealing with oil revenues to consider strategies for absorbing liquidity, and how it can be done effectively and without undermining the central bank’s financial position.
Communication
& market intelligence
Speaker to be confirmed
Central banks often rely on
their presence in financial markets as a means of generating intelligence
that can be used to support other functions, particularly the emerging
financial stability function. But to what extent should those involved
with monetary operations be responsible for gathering this information,
and could it potentially have a detrimental impact on their relationship
with market participants? This session will look at the role of dealers
in the money markets, and ask how, if at all, they can be used to generate
market intelligence. It will also consider the broader question of how
the central bank can effectively communicate information to financial
markets about its operations, objectives and policies.
The market view
Ronny Maiti
Head of Fixed Income Trading, Cater Allen International Ltd
Central banks need to make sure
they work with financial markets when implementing monetary policy. The
choice of instruments must reflect the local circumstances, and must fit
with the capabilities and needs of market participants. When considering
changes, consulting money market participants is vital in order to make
sure that reforms are successful and well accepted. The speaker, who has
considerable experience operating in UK money markets, will discuss from
a private-sector perspective how central bankers should manage their relationship
with the markets, what market priorities for central bank operations might
be, and how to consult with markets.
Conclusions and summary
Piero
Ugolini
Chairman
This session will draw together the themes covered by
the course, summarise the lessons learned, and generate priorities for
action on their return home. There will also be an opportunity for delegates
to raise any remaining issues or questions for the chairman and the rest
of the group to discuss.
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