BIS has released its quarterly report. How they end up producing such interesting analysis every quarter is something.
Adam Cap, Mathias Drehmann and Andreas Schrimpf in one of the report papers, analyse changes in monetary policy operating procedures over the last decade:
The implementation of monetary policy has two core elements (eg Borio and Nelson (2008)).5
The first comprises mechanisms to signal the desired policy stance, eg is the central bank easing or tightening? These mechanisms involve variables that are fully under the central bank’s control. Such variables can be policy interest rates, such as a lending rate or announced ranges for an overnight rate, or balance sheet quantities, such as announced large-scale purchases of government securities.
The second comprises market operations to implement the stance. In line with the type of signal, the operations may seek to influence a market interest rate, such as an overnight rate in the interbank market, or simply execute the announced adjustments in the central bank’s balance sheet, such as the purchases noted above. If the central bank seeks to influence a market rate rather precisely, this is typically referred to as an “operational target”.
What have been the changes?
The GFC has resulted in profound changes in operating procedures in many currency areas, especially in major AEs.
Pre-GFC, most central banks defined the policy stance and operational targets exclusively in terms of a short-term interest rate, most often an overnight interbank rate. In and of themselves, the transactions in the market to implement that stance carried no signal. Indeed, central banks went a long way to avoid any such impression so as not to confuse markets. The transactions were of a purely technical nature and were designed not to influence market prices beyond the operational target. They were carried out purely to adjust the amount of bank deposits with the central bank in order to control the overnight rate (see below). This “decoupling principle” ruled supreme.
Post-GFC, as the policy rate neared the ELB in many currency areas, the respective central banks expanded their toolkit and followed a more multifaceted approach. Signals have included balance sheet quantities too. And they have not been limited to announcing some policy rate(s) or an adjustment in the central bank balance sheet today; they have sometimes also provided guidance about the future path of those variables (“forward guidance”). Moreover, operational targets have also gone beyond overnight or short-term rates and included long-term rates, such as benchmark 10-year bond yields. Put differently, the active use of adjustments in the size and composition of the balance sheet to change the policy stance (“balance sheet policies”) has done away with the decoupling principle.
Despite these fundamental changes, the overnight interbank rate still plays a key role in day-to-day policy implementation. This is because it is the rate that the central bank controls most closely and, partly as a result, is the linchpin of the term structure of interest rates. This rate represents the marginal cost of funds for immediate liquidity purposes and is determined by the supply of, and demand for, bank deposits with the central bank, ie “bank reserves”. It can be controlled most closely because the central bank is, by construction, the monopoly supplier of bank reserves. It changes the supply by lending/borrowing in the market (eg through repos and reverse repos) and by buying/selling assets.6 Moreover, the central bank can also influence directly the demand for reserves through reserve requirements, which require banks to hold a minimum amount of deposits with the central bank.
Nice bit…
Mostly Economics 
