Open Market Business Development

Open market operation is the main instrument to control base money and interest rate in developed countries.The People's Bank of China (PBC) also mainly use open market operation to control base money and interest rate since 1998.But the open market operation of PBC has some defects in its operation target,operation system and basic conditions,which reduce the effects of open market operation.Therefore,we should use the experience of developed countries for reference and further improve the open market operation of PBC.The paper has four chapters.The first chapter has three sections.In the first section, the paper analyse the advantages and disadvantages of open market operation. On the one hand, open market operation has many advantages which include flexibility, reversibility and transparency.In addition,open market operation combine the monetary policy and fiscal policy.On the other hand, open market operation has some disadvantages.For example, open market operation is partly determined by external factors such as desire of commercial bank. Open market operation also depend on highly developed security market. In the second section,the paper elaborate new development on the interest control of open market operation which is called"announcement effects"or"open mouth operations". In the so-called"announcement effects",central bank guide expection of the public through high transparency of monetary policy and the market interest rate will move to the target interest rate of the central bank without open market operation."Announcement effects"reduce the range of interest rate fluctuation and enhance open market operation's interest rate control. In the third section,the paper point out the important role of open market operation in monetary policy.Open market...