Understanding Monetary Policy Implementation.

The article focuses on the issue concerning the monetary policy implementation in the U.S. It states that the Federal Reserve Board aims to adjust the total supply of reserve balances so that it equals demand at exactly the target rate of interest. It says that the critical issue in the implementation process is the sensitivity of the market interest rate to unanticipated changes in supply and demand. It adds that if small estimation errors lead to large swings in the interest rate, a central bank will find it difficult to effectively implement monetary policy to consistently hit the target rate.