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Monetary Policy in a Channel System


Berentsen, Aleksander; Monet, Cyril (2006). Monetary Policy in a Channel System. Working paper series / Institute for Empirical Research in Economics No. 295, University of Zurich.

Abstract

This paper studies the theoretical properties of a channel system of interestratencontrol in a dynamic general equilibrium model. Agents are subject to liquidity shocks which can be partially insured in a secured money market, ornat 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 canntighten its policy without changing its policy rate by simply increasing the corridor symmetrically around the policy rate.

Abstract

This paper studies the theoretical properties of a channel system of interestratencontrol in a dynamic general equilibrium model. Agents are subject to liquidity shocks which can be partially insured in a secured money market, ornat 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 canntighten its policy without changing its policy rate by simply increasing the corridor symmetrically around the policy rate.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:July 2006
Deposited On:29 Nov 2011 22:47
Last Modified:12 Aug 2017 13:02
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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