Enhancing the Effectiveness of Monetary Policy Lastly, I will touch on the effectiveness of monetary policy. For the conduct of monetary policy, central banks buy and sell financial instruments from capital markets, and they also receive financial instruments as collateral for the provision of liquidity.
So, the degree of market functioning and liquidity concerning those financial instruments is a critical element that impacts the effectiveness of monetary policy. For example, see Bank for International Settlements (2016), "A Spare Tire for Capital Markets: Fostering Corporate Bond Markets in Asia," BIS papers, No. 85, which focuses on the importance of domestic bond markets among capital markets in times of crisis.