Finance:Open mouth operations
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Open mouth operations are communications by a central bank that affect Central Bank interest rates.[1] They are a tool of monetary policy. The term was coined by economists Graeme Guthrie and Julian Wright in the year 2000.[2] While looking at the operations and communications of the Reserve Bank of New Zealand, these economists found that communications by the central bank had a much more significant effect on the interest rate than did Central Bank operations. Unbeknownst to most economists,[1] Open Mouth Operations let central banks change interest rates without significantly changing their daily monetary operations. Mario Draghi's 2012 statement[3][4] that “the ECB will do whatever it takes to preserve the euro, and believe me, it will be enough”, is an example of a successful Open Mouth Operation used to lower the interest rates of Spanish government bonds: following the announcement, Spanish government bond interest rates dropped 352 basis points without the ECB having to purchase them.[1]
References
- ↑ 1.0 1.1 1.2 Ramanan, Vijayaraghavan; Rossi, Sergio; Rochon, Louis-Philippe (2015). The Encyclopedia of Central Banking. Edward Elgar Publishing. pp. 385–386. ISBN 9781782547433. https://www.e-elgar.com/shop/the-encyclopedia-of-central-banking. Retrieved 3 October 2019.
- ↑ Guthrie, Graeme; Wright, Julian (October 2000). "Open Mouth Operations" (in en). Journal of Monetary Economics (Social Science Research Network) 46 (2): 489–516. doi:10.1016/S0304-3932(00)00035-0.
- ↑ Draghi, Mario (26 July 2012). "Verbatim of the remarks made by Mario Draghi" (in en). European Central Bank. European Central Bank. https://www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html. Retrieved 3 October 2019.
- ↑ Milliken, David; Zaharia, Marius (26 July 2012). "Draghi sends strong signal that ECB will act" (in en). Reuters. Reuters. https://www.reuters.com/article/us-eurozone-ecb-draghi/draghi-sends-strong-signal-that-ecb-will-act-idUSBRE86P0HM20120726. Retrieved 3 October 2019.
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