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Monetary Policy in Denmark

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Contents

Foreword

Chapter 1: The Monetary- and foreign-exchange-policy instruments

1.1        Danmarks Nationalbank is banker to the banks
1.1.1     Monetary policy
1.1.2     Payment system

1.2        The fixed-exchange-rate policy

1.3        The monetary-policy instruments
1.3.1     Current-account deposits
1.3.2     Danmarks Nationalbank's market operations
1.3.3     Monetary- and foreign-exchange-policy counterparties

1.4        The monetary-policy instruments in Denmark compared to those of the
Eurosystem

1.5        Danmarks Nationalbank's balance sheet
1.5.1     Net position vis-à-vis Danmarks Nationalbank
1.5.2     The government's account at Danmarks Nationalbank
1.5.3     The foreign-exchange reserve
1.5.4     The portfolio of domestic bonds
1.5.5     Banknotes and coins in circulation

1.6        Instruments and intervention in the foreign-exchange market

1.7        References

Appendix 1.A: Danmarks Nationalbank's role in settlement of payments in Danish
kroner
Appendix 1.B: Information from Danmarks Nationalbank
Appendix 1.C: Pledging of collateral for monetary-policy loans

Chapter 2: The Monetary- and foreign-exchange Markets

2.1        The Danish money market
2.1.1     Products
2.1.2     Market structure
2.1.3     Trading volume

2.2        The foreign-exchange market
2.2.1     Products
2.2.2     Market structure
2.2.3     Trading volume

2.3        References

Chapter 3: Monetary policy, financial conditions and the real economy

3.1        Formation of interest and exchange rates
3.1.1     External influences on Danish interest rates
3.1.2     The banks' interest rates
3.1.3     Money-market interest rates and short-term bond yields
3.1.4     Long-term interest rates
3.1.5     The effective krone rate

3.2        Financing patterns of households and corporations
3.2.1     Households
3.2.2     Corporations

3.3        The impact of interest and exchange rates on the real economy
3.3.1     Real-capital investments
3.3.2     Private consumption
3.3.3     Foreign trade

3.4        Effects of interest and exchange-rate changes on GDP and consumer prices
3.4.1     The effects of isolated changes in Danish interest and exchange rates
3.4.2     The effects of a temporary increase in interest rates in the euro area and
Denmark

3.5        References

Chapter 4: Monetary-policy strategies

4.1        Objectives

4.2        Intermediate targets
4.2.1     Denmark and the fixed-exchange-rate policy
4.2.2     Intermediate targets of other countries

4.3        Instruments
4.3.1     Market orientation of monetary policy
4.3.2     Denmark
4.3.3     Other countries

4.4        From strategy to practice
4.4.1     Independence
4.4.2     Interaction with fiscal policy
4.4.3.    Openness and transparency
4.4.4     Credibility

4.5       References

Glossary

Charts

1.1       Danmarks Nationalbank's lending rate and the money-market interest rate
1.2       Danmarks Nationalbank's discount rate and the banks' average rates of
interest for lending and deposits
1.3       Exchange rate of the krone vis-à-vis the euro
1.4       Spread between monetary-policy interest rates in Denmark and in the euro area
1.5       Intervention purchases of foreign exchange against kroner
1.6       Danmarks Nationalbank's monetary-policy interest rates
1.7       Danmarks Nationalbank's current-account interest rate and the overnight
interest rate in the money market
1.8       The net position of the monetary-policy counterparties vis-à-vis Danmarks
Nationalbank
1.9       Monetary-policy interest rates in Denmark and the euro area
1.10     Change in net position and net purchase of foreign exchange
1.11     The balance of the central government's account at Danmarks Nationalbank,
year-end
1.12     The central government's liquidity impact in 2002
1.13     The foreign-exchange reserve and the central government's foreign debt,
year-end
1.14     Banknotes and coins in circulation, and private consumption

2.1       Average daily turnover in cash market products on the money market in 2002
2.2       Average daily turnover in interest-rate derivatives in April 2001
2.3       Average daily turnover in the Danish foreign-exchange market in April 2001

3.1       Lending rates of the ECB and Danmarks Nationalbank
3.2       Danish interest rates for various maturities
3.3       The discount rate and the banks' average deposit and lending rates
3.4       10-year government-bond yields in selected countries
3.5       10-year bond yields in Denmark and Germany
3.6       Effective krone rate and bilateral krone rates
3.7       Quarterly percentage changes in housing prices and quarterly changes in
long-term bond yields
3.8       Correlation between Danish stock prices and long-term bond yield
3.9       Long-term bond yield and investment ratio
3.10     Cash prices, construction costs and housing investments
3.11     Wealth and consumption as a ratio of disposable income
3.12     Danish export market share and relative export price
3.13     Relative import price and import market share
3.14     Effect on GDP in constant prices
3.15     Effect on consumer prices

4.1       Bilateral exchange rate and relative prices between Denmark and Germany
4.2       Short-term and long-term interest rates in Denmark since 1813
4.3       Annual growth in consumer prices in Denmark and Germany
4.4       Government budget balance in Denmark

Tables

1.1       Main items of Danmarks Nationalbank's balance sheet, end-2002
1.2       Impact on Danmarks Nationalbank's balance sheet of sale of foreign
exchange for kr. 1 billion
1.3       Impact on Danmarks Nationalbank's balance sheet of a central-government
payroll disbursement of kr. 1 billion
1.4       Impact on Danmarks Nationalbank's balance sheet of a central-government
loan in foreign exchange of kr. 1 billion
1.5       Impact on Danmarks Nationalbank's balance sheet of an increase in banknotes
and coins in circulation by kr. 1 billion
1.A.1    Krone payments
1.B.a    Information published on a daily basis
1.B.b    Other regular information
1.C.1    Pledgeable assets in connection with Danmarks Nationalbank's monetary-policy
loans
1.C.2    Margins and haircuts on provision of collateral for krone-denominated credit
from Danmarks Nationalbank

3.1       Weights in Danmarks Nationalbank's effective krone-rate index
3.2       Borrowing by households from Danish banks and mortgage-credit institutes
3.3       Borrowing by the corporate sector from Danish banks and mortgage-credit
institutes
3.4       Effects of a temporary interest-rate increase in the euro area and Denmark

Boxes

1.1       Creation of current-account liquidity
1.2       Monetary policy and settlement of payments
1.3       The European Exchange-Rate Mechanism (ERM II)
1.4       Danmarks Nationalbank's use of intervention and changes in interest rates
1.5       Technical volatility in the overnight interest rate
1.6       Regular weekly market operations
1.7       Extraordinary market operations
1.8       Use of the monetary-policy instruments in practice
1.9       The monetary-policy instruments of the Eurosystem
1.10     The government borrowing norm
1.11     Danmarks Nationalbank's gold stock and lending of gold
B.1       DN News, screen 12 net position at 3.30 p.m.
B.2       Forecasts of the liquidity impact of central-government finances
B.3       Use of Danmarks Nationalbank's information to analyse the development in
the net position of the monetary-policy counterparties

2.1       Cash market products in the Danish money market
2.2       Interest-rate derivatives in the Danish money market
2.3       Reference interest rates and conventions in the Danish money market
2.4       Market making in the Danish money market
2.5       Danmarks Nationalbank's statistics for turnover in cash market products
2.6       Products in the Danish foreign-exchange market
2.7       Practices and conventions in relation to foreign-exchange transactions
2.8       Danmarks Nationalbank's exchange rates
2.9       Market making in the Danish foreign-exchange market

3.1       Transmission channels

4.1       Why low inflation?
4.2       Denmark's foreign-exchange policy
4.3       Monetary aggregates

Monetary Policy in Denmark
June 2003

Text may be copied from this publication provided that Danmarks Nationalbank is specifically stated as the source. Changes to or misrepresentation of the content are not permitted.

As a rule, Tables and Charts are based on data up to and including 2002.

Please address enquiries to or order "Monetary Policy in Denmark" from:
Danmarks Nationalbank,
Information Desk,
Havnegade 5,
DK-1093 Copenhagen K.
Telephone +45 33 63 70 00 (direct)
or +45 33 63 63 63.
E-mail: info@nationalbanken.dk
www.nationalbanken.dk

Printed by: Schultz Grafisk A/S
ISBN 87-87251-36-1
(Online) ISBN 87-87251-38-8




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