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The safe asset, banking equilibrium, and optimal central bank monetary, prudential and balance-sheet policies


Magill, Michael; Quinzii, Martine; Rochet, Jean-Charles (2020). The safe asset, banking equilibrium, and optimal central bank monetary, prudential and balance-sheet policies. Journal of Monetary Economics, 112:113-128.

Abstract

A simple equilibrium model is presented which permits the joint study of optimal Central Bank prudential, monetary and balance sheet policies in the pre and post 2008 Crisis periods. It explains the new policies-the purchase of risky securities (QE), payment of interest on reserves (IR) and use of reverse repo (RRP)-as the response to the lack of safe assets in the economy, and shows why these policies were not needed to achieve optimality before 2008, but were needed for the 2008 Crisis and thereafter.

Abstract

A simple equilibrium model is presented which permits the joint study of optimal Central Bank prudential, monetary and balance sheet policies in the pre and post 2008 Crisis periods. It explains the new policies-the purchase of risky securities (QE), payment of interest on reserves (IR) and use of reverse repo (RRP)-as the response to the lack of safe assets in the economy, and shows why these policies were not needed to achieve optimality before 2008, but were needed for the 2008 Crisis and thereafter.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:1 June 2020
Deposited On:16 Nov 2020 18:07
Last Modified:16 Nov 2020 18:10
Publisher:Elsevier
ISSN:0304-3932
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jmoneco.2019.02.002
Other Identification Number:merlin-id:17628

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