English, Article, Journal or magazine article edition: Monetary Policy in a Channel System Aleksander Berentsen; Cyril Monnet

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Bookmark: http://trove.nla.gov.au/version/161981
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Monetary policy in a channel system
Author
  • Aleksander Berentsen
  • Cyril Monnet
Physical Description
  • preprint
Notes
  • Channel systems for conducting monetary policy are becoming increasingly popular. Despite their popularity, the consequences of implementing policy with a channel system are not well understood. We develop a general equilibrium framework of a channel system and investigate the optimal policy. A novel aspect of the channel system is that a central bank can "tighten" or "loosen" its policy without changing its target rate by increasing the interest-rate spread symmetrically around the target rate. This questions the characterization of optimal policy through interest-rate rules, as done in a large body of the literature on the optimal design of interest-rate rules.
  • RePEc:ces:ceswps:_1929
  • This paper studies the theoretical properties of a channel system of interestrate control in a dynamic general equilibrium model. Agents are subject to liquidity shocks which can be partially insured in a secured money market, or at a standing facility operated by the central bank. We show that it is optimal to have a strictly positive interest rate corridor and that a shift of the corridor affects the money market rate one for one. Moreover, the central bank can tighten its policy without changing its policy rate by simply increasing the corridor symmetrically around the policy rate.
  • Monetary Policy, Interest Rates, Search
  • RePEc:zur:iewwpx:295
  • Channel systems for conducting monetary policy are becoming increasingly popular. Despite its popularity, the consequences of implementing policy with a channel system are not well understood. The authors develop a general equilibrium framework of a channel system and study the optimal policy. A novel aspect of the channel system is that a central bank can "tighten" or "loosen" its policy without changing its policy rate. This policy instrument has so far been overlooked by a large body of the literature on the optimal design of interest-rate rules.
  • RePEc:fip:fedpwp:08-7
Language
  • English
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