Autumn
2008 Training Course/Seminar Series
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The Changing Framework of Monetary
Policy Operations 
4-day intensive residential programme, 26 - 29 August
2008
Venue: King’s College Cambridge University
Course Chairman: Piero Ugolini, Former Assistant Director, Monetary
and Foreign Exchange Operations Division, IMF
Series adviser: Charles Goodhart, CBE, Professor
Emeritus, London School of Economics, Financial Markets Group
Details of how to register
are here
Dear Delegate,
Recent remarks by Mark Carney, Governor of the Bank of
Canada, illustrate the state of flux monetary operations are in.
“We cannot buy corporate bonds…We cannot buy term asset-backed securities. We cannot buy municipal bonds, or we cannot buy corporate commercial paper. These are big chunks of the financial market, and the issues that we are facing right now are issues of provision of liquidity to core bits of the market.”
In the wake of the credit crisis of 2007-08 central banks have taken unprecedented steps to restore order to markets: injecting liquidity, cooperating internationally and widening eligible collateral.
Yet the work is far from over as central banks grapple with new questions and challenges in providing liquidity.
What will be the consequences of the market upheavals for operations in the longer term?
How can central banks prepare their operating frameworks for crises in the future?
This course is designed to equip central bankers with the tools to meet the significant demands of monetary policy operations in today’s turbulent times.
Delegates will be challenged to consider carefully the design of their operating framework and, through interaction with a range of international experts, will investigate new approaches to improve and enhance their operations.
Key issues which will be a focus of
discussions over the week include:
• Lessons from the credit crisis
• Assessment of the crisis and what it means for central banks’ operations.
• How central banks can ensure they forecast liquidity
• Liquidity forecasting
• Market interaction
• Effective communication and collecting intelligence
• Tackling the ‘stigma’ of lender-of-last-resort
Since 1997, Central Banking Publications has hosted roundtable seminars and training courses for over 1,500 senior policymakers from central banks, ministries of finance and financial regulatory agencies around the world and senior officials from more than 100 countries have attended these meetings over the past ten years.
The four-day programme of interactive
roundtable seminars and workshops offers practical examples of implementing
monetary policy frameworks as well as their development and reform. The
roundtable format naturally encourages delegates to quiz the presenters,
raise issues and discuss solutions. We look forward to welcoming you to
Cambridge on 26 August.
Yours faithfully,
Robert Pringle Managing Director
New challenges, new risks
Introduction and roundtable led by Piero
Ugolini
This opening session will set the
scene for those that follow with the course chairman highlighting 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 brief 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. The aim of this session
will be to identify key topics of interest to the group for particular
attention in later sessions.
Balancing tensions between stability and risk
Charles Goodhart
Professor Emeritus, London
School of Economics
The paralysis that spread from markets
for asset-backed commercial paper to money markets forced central banks
to scramble to prevent rising interbank tensions from threatening financial
stability. In this session, Charles Goodhart will give his assessment
of the recent crisis and what it means for central bank operations.
Three key issues stand out: first, how can central banks lend in emergencies
when there is ‘stigma’ attached to such borrowing? Second, does it matter
if central banks accept lower-rated collateral? Third, do central banks
need to expand the range of counterparties they deal with in order to
ensure they can inject liquidity into the system?
How will the international dimension
affect the development operational frameworks?
Már Gudmundsson
Deputy Head, Monetary and Economic
Department, Bank for International Settlements
During the current financial turmoil
the normal channels for distributing liquidity internationally, such
as through currency swap markets, came under some strain, complicating
cross-border liquidity management of internationally active banks. Some
major central banks responded through setting up bilateral swap arrangements.
Furthermore, the central banks operated intensive information exchange
throughout the turmoil and on two occasions five major central banks
made joint announcements on their monetary operations. Moreover, operational
frameworks of major central banks have to some degree converged during
the turmoil and proposals have been made to go further down that path,
eg by harmonising rules on collateral and, even, by accepting foreign
collateral in domestic operations. This session will make an assessment
of the potential future implications of the turmoil for operational
frameworks regarding international distribution of liquidity, harmonisation,
and other relevant aspects of central bank cooperation.
Piero Ugolini brings over two decades of experience in advising central banks in all aspects of market operations and monetary policy implementation. From 2002 to 2004, he was Assistant Director of the Monetary and Foreign Exchange Operations Division at the IMF and prior to that he was Division Chief of the Monetary Operations Division. He has led Fund missions to 23 countries advising on monetary operations, and continues to participate in missions around the world.
Building a sophisticated operating framework
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.
Effective transmission of monetary
policy impulses to the markets
Michel
Stubbe
Head, Market Operations Analysis
Division, European Central Bank
The widening of spreads in longer-term
European money markets last autumn presented a significant challenge to
its central bank. As rates diverged from the policy rate, the transmission
of monetary policy threatened to breakdown and the central bank took extraordinary
action. In this session, the speaker will discuss how the European Central
Bank tackled this near-dislocation from an operational perspective and
the lessons that can be drawn from this episode.
Monetary
policy instruments, FX policy and liquidity managment under inflation
targeting
Ali
Cufudar
Assistant
General Director of the Markets Department, Central Bank of the Republic
of Turkey
As the increasingly
fashionable way to make monetary policy, inflation targeting is practiced
in over 20 countries. Adopting inflation targeting places many demands
on a central bank, not least on the operating framework, which must be
able to effectively transmit policy decisions to financial markets and
the economy as a whole. The speaker will consider the preconditions to
inflation targeting from an operational perspective, consider what lessons
can be drawn by from the experience.
The central bank’s role in deepening
markets
Julia Király
Deputy Governor, National Bank of Hungary
Located at the apex of local financial markets, central
banks have a unique opportunity to shape their development. Ultimately,
the creation of a lively but robust market will provide the central bank
with a smoother transmission mechanism for monetary policy. In addition,
the central bank may, not only through its own use of the market, but
also by attending to questions of market infrastructure and regulation,
stimulate the development of financial markets more generally. This could,
in turn, improve financial intermediation for the benefit of businesses
and individuals. In this session, the speaker will discuss the role central
banks can play in developing domestic money markets.
Workshop session: updating and aligning the operating framework
Led by the Chairman
Following on from the day’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.
Market interaction
Kevin Gardiner
Global Head of Equity Strategy,
HSBC Bank
Monetary policy operations do not
exist in isolation. Central banks need to make sure they work with financial
markets when implementing monetary policy. The speaker 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. Particular attention will be devoted
to assessing how central banks communicated as markets started to cease
up.
Delivering accurate and timely
liquidity forecasts
Kieren Wright
Senior Manager, Santander Asset
Management and Former Chief Dealer, Bank of England
Asbjorn Fidjestol
Director, Norges Bank Monetary
Policy
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. In this session,
the two speakers will outline the key features of liquidity forecasting
systems in the UK and Norway, focusing on potential problem areas, and
how these can be tackled.
Effective communication and collecting
market intelligence
Mika Poso
Head of Economic Development and Analysis
Division, Bank of Finland
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 speakers draw on their
experiences of dealing with large inflows to and developing strategies
for absorbing liquidity, and how it can be done effectively and without
undermining the central bank’s financial position.
Case studies: sterilisation and dealing
with disruptive flows
Jan Frait
Head
of Financial Stability, Czech National Bank
Asbjorn
Fidjestol
Director, Norges Bank Monetary Policy
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 speakers draw on their experiences of dealing with large inflows to and developing strategies for absorbing liquidity, and how it can be done effectively and without undermining the central bank’s financial position. Existing literature provides rather diverse views and recommendations how to cope with a negative central bank capital. The analysis of long-term solution as well as communication of the issue towards a general public is provided.
Evolution of monetary policy operations
Jesper Berg
Head
of market Operations, Danmarks Nationalbank
A comparison of the monetary policy
frameworks across different countries and an examination of how the fallout
from the credit crisis will bring about changes in the future
Case-study: the Bank of England's
special liquidity system
Sarah John
Senior Manager, Sterling Markets Division, Bank of England
The Bank of England has repsonded
to the widening of spreads in domestic money markets with the creation
of a special liquidity system. This session, in the form of case-study,
looks at the work and analysis behind the reform and offers a preliminary
assessment of its performance.
Conclusions and summary
A roundtable discussion
led by the Chairman, Piero
Ugolini
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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