Central bank design

Ricardo Reis has written a well organized paper on central bank design in the Fall 2013 Journal of Economic Perspectives. I will outline some of the key features because it provides a good framework for any analyst of central bank policy. When thinking about central bank policy, walk through these dimensions.

Central Bank Goals:

The goals of central bank policy should be the driver of any action or policy choice.

Dimension 1: The strictness of the central bank's mandate - Is it just inflation or doe sit include a dual mandate? The Fed seism to be in transition with a growing emphasis on full employment and systemic risks.
Dimension 2: The choice of long-run goals - So what is full employment and potential GDP? What is the inflation goal in the long-run?
Dimension 3: The potential role of additional short-term goals - There is trade-off between controlling inflation in the long-run versus the short-run. Long-term goals may not be achievable in the short-run
Dimension 4: The choice of central bankers - The move at the Fed is to have more academics and viewer true bankers. This will have an impact on goals.

Central Bank resources and policy tools

Dimension 5: The role of the central bank as a source of revenue - This speaks to the relationship with the Treasury department and central bank independence.
Dimension 6: The importance of fiscal backing for the central bank - Again what is the role of the fiscal  government with respect to monetary policy?
Dimension 7: The set of asset held by the central bank - Should it include just Treasury instruments but other types of assets?
Dimension 8: The payment of interest on reserves - This will determine how the central bank is integrated with other banks with respect to reserve lending.

Transparency, commitment, and accountability

Dimension 9:   The importance of announcements and commitments - What is the level of credibility and how are announcements made to the market?
Dimension 10: Choosing the extent of transparency - How much transparency does the central bank want to have?
Dimension 11: Picking the channel(s) of communication - It can be through minutes, speeches, or actions. The choice will have a significant impact on rates.
Dimension 12: The accountability of the central bank - Who holds the central bank accountable?

Call it the twelve questions, but this is very comprehensive review of the key issues of any central bank.