Corridor, floor, other: are operating frameworks fit for the future?

Central banks are becoming aware that monetary operations have ramifications beyond setting short-term rates

To an outside observer, setting a central bank’s interest rate seems a simple process. Policy-makers determine the rate, announce it, and markets make it so. In reality, however, a sometimes-baffling process of market operations has to take place behind the scenes before short-term market rates – hopefully – align with the policy rate. Often, market rates do not behave. Deviations tend to be small but can become spectacularly large, sometimes to the point of causing severe financial instability

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