Money Supply Management through the Interest Rate Mechanism
At the beginning of 1996 the ČNB changed money supply management. The transition was from a monetary base regulation towards control of short-interest rate of inter banking market PRIBOR 1 week. While monetary regulation base mainly results in changes of the monetary supply, the transition mechanism based on control of short interest rate influences both monetary supply and monetary demand. The monetary transition interest rate mechanism raises three questions: Does exist a perfect control of REPO? Is real a perfect connection between REPO a PRIBOR? How an interest rate influence credit market? These problems are analysed in the text. The last two parts of the article are dedicated to empirical estimates of adjustment of Pool model done by Pierce. The model can be used as a tool for decision between monetary base and interest rate.
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