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Optimal Central Bank Lending

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  • Andreas Schabert

    (Dortmund University, and University of Amsterdam)

Abstract

We analyze optimal monetary policy in a sticky pricemodel where the central bank supplies money outrightvia asset purchases and lends money temporarily againstcollateral. The terms of central bank lending affect ra-tioning of money and impact on macroeconomic aggre-gates. The central bank can set the policy rate and itsinflation target in a way that implements the first bestlong-run allocation, which is impossible if money weresupplied in a lump-sum way (as commonly assumed).Efficient central bank lending further increases gainsfrom macroeconomic stabilization beyond pure interestrate policy. This requires departing from a "Treasuries-only" regime.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-057/2.

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Date of creation: 21 Jun 2010
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Handle: RePEc:dgr:uvatin:20100057

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Web page: http://www.tinbergen.nl

Related research

Keywords: Optimal monetary policy; central bank instruments; collateralized lending; liquidity premium; inflation;

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  1. Stephanie Schmitt-Grohé & Martín Uribe, 2006. "Optimal Simple and Implementable Monetary and Fiscal Rules: Expanded Version," NBER Working Papers 12402, National Bureau of Economic Research, Inc.
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Cited by:
  1. Hilberg, Björn & Hollmayr, Josef, 2011. "Asset prices, collateral and unconventional monetary policy in a DSGE model," Working Paper Series 1373, European Central Bank.

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