| This dissertation addresses the mechanics and practical policy issues associated with monetary policy implementation when central banks choose to target a short term interest rate.;Chapter 1 presents an overview of the factors impacting the demand for and supply of funds in overnight interbank markets and the tools available to central banks to influence the supply and demand for overnight funds. The chapter then reviews previous studies of money markets and central bank lending facilities and outlines the key gaps in current academic studies of monetary policy implementation.;Chapter 2 develops a general model of an overnight interbank market that encompasses the primary tools used by central banks to implement a short term interest rate target. The model is then employed to examine the tradeoffs involved in the choice of differing interest rate targeting approaches. Finally, the model is used to nest the interest rate targeting approaches employed by four major central banks (the Federal Reserve System, European Central Bank, Bank of England, and Reserve Bank of Australia) and rationalize the contrasting behavior of overnight interbank interest rates observed across these currency areas.;Chapter 3 focuses on the impact of overnight interest rates on longer term money market interest rates. At issue is the extent to which volatility in overnight interest rates (around the central bank target rate) influences longer term borrowing costs and implies additional tradeoffs in central banks' choice of interest rate targeting tactics.;Chapter 4 examines U.S. depository institutions' borrowing from the Federal Reserve Banks' discount window, how the recent restructuring of the discount window lending facility altered bank borrowing behavior and the tradeoffs involved in designing such a lending facility.;Finally, Chapter 5 summarizes the dissertation's findings, discusses policy implications and notes avenues for further research. |
