News release: “Central banks differ in their approaches to implementing monetary policy, both in good economic times and in bad, according to a study released today by the Federal Reserve Bank of New York. The study, entitled “Monetary Policy Implementation: Common Goals but Different Practices,” is the latest article in the New York Fed series Current Issues in Economics and Finance. Authors Marlene Amstad and Antoine Martin begin their analysis by considering how four central banks—the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank—approach the choice of an interest rate target, or “operational target,” a standard feature of conventional monetary policy. While the first three central banks target an overnight rate, the Swiss central bank targets a range for the three-month Libor for the Swiss franc. The authors note that the choice between a short-term and longer-term rate presents trade-offs: the former is easier to target, but the latter is more relevant to economic activity, since it more directly influences firms’ investment decisions and households’ real estate decisions. Moreover, during periods of financial stress, the use of the three-month rate permits a central bank to stabilize the long-term rate while letting shorter rates fluctuate to absorb changes in risk or liquidity premia.”