Implementation Problems of Monetary Policy Strategy

Monetary policy strategy may be defined, in broad terms, as the set of procedures according to which a central bank decides how to act in order to achieve its final objective. Since monetary policy faces a complex transmission process from policy actions to the final goals of interest to the central bank, it is now generally agreed that the monetary policy of the central bank should be both forward-looking and pre-emptive, with timely policy responses ensuring the achievement of the final objective. In addition, a clear framework, which guides the use of the central bank’s monetary policy instruments so as to achieve it’s final objective, is needed to establish credibility and consistency of the decision-making process over time. Against this background, the conduct of monetary policy poses formidable problems for central banks and raises a number of important practical issues in respect to implementation. These issues are the focus of this paper.