A hundred ways to skin a cat: comparing monetary policy operating procedures in the United States, Japan and the euro area1

I have been kindly invited to provide a “critical” comparative analysis of the monetary policy operating
frameworks in the United States, Japan and the euro area (EMU). At the risk of disappointing the
audience and readers, let me state from the beginning that it is generally not easy, and often not even
appropriate, to be critical in this field of monetary policy. Just as there are a hundred ways to skin a
cat, so there are a hundred ways to implement monetary policy. These may differ considerably in
terms of the interest rates that are the focus of policy, the range of instruments employed, the
frequency of operations, the spectrum of counterparties and other technical elements. Such
differences reflect a mixture of purely historical factors and different views regarding the fine balance
between the pros and cons of the various choices. At the end of the day, however, the proof of the
pudding is in the eating. The “eating” here is the central bank’s ability to convey its policy signals with
the desired degree of clarity and its ability to influence short-term rates with the desired degree of
accuracy. From this perspective, the three frameworks do the job.
What follows, therefore, highlights the key similarities and differences between the three operating
frameworks, explaining the implications of the various choices made by the monetary authorities and
the possible factors underlying them against the background of the evolution of the different systems.
Where relevant, the experience of other central banks, in some cases the predecessors of the
European System of Central Banks (ESCB), is brought to bear. Section I outlines a general framework
underlying the analysis.2 Section II attempts a comparative assessment, focusing only on some of the
most salient characteristics of the arrangements. The conclusions briefly summarise the key points.