The effects of open market operations in a model of intermediation and growth

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The effects of open market operations in a model of intermediation and growth

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Stacey L. Schreft
Bruce D. Smith

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Abstract

This article presents a monetary growth model in which spatial separation and limited communication create a role for banks. Monetary policy interacts with the financial system's liquidity provision to affect the existence, multiplicity, and dynamical properties of equilibria. Moderate levels of risk aversion and tight monetary policy can lead to multiple steady rates. Dynamical equilibria can be indeterminate, with oscillatory paths. Thus financial market frictions are a source of indeterminacies and endogenous volatility. Under plausible conditions, tight monetary policy raises the nominal interest rate and inflation rate and reduces long-run output. Thus, a central bank's liquidity provision can promote growth.

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Publisher Info
Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 97-03.

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Date of creation: 1997
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Handle: RePEc:fip:fedkrw:97-03

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Article
- Schreft, Stacey L & Smith, Bruce D, 1998. "The Effects of Open Market Operations in a Model of Intermediation and Growth," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 519-50, July. [Downloadable!] (restricted)
Paper
- Stacey L. Schreft & Bruce D. Smith, 1994. "The effects of open market operations in a model of intermediation and growth," Working Paper 94-10, Federal Reserve Bank of Richmond. [Downloadable!]
- Stacey L. Schreft & Bruce D. Smith, 1995. "The effects of open market operations in a model of intermediation and growth," Working Papers 562, Federal Reserve Bank of Minneapolis. [Downloadable!]

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Kaas, Leo & Weinrich, Gerd, 2000. "Money and Growth in a Production Economy with Multiple Assets," Economics Series 86, Institute for Advanced Studies. [Downloadable!]
Other versions:
- Kaas, Leo & Weinrich, Gerd, 2003. "Money And Growth In A Production Economy With Multiple Assets," Macroeconomic Dynamics, Cambridge University Press, vol. 7(05), pages 670-690, November. [Downloadable!]
Andreas Schabert, . "Identifying Monetary Policy Shocks with Changes in Open Market Operations," Working Papers 2003_10, Department of Economics, University of Glasgow, revised Jun 2003. [Downloadable!]
Other versions:
- Schabert, Andreas, 2005. "Identifying monetary policy shocks with changes in open market operations," European Economic Review, Elsevier, vol. 49(3), pages 561-577, April. [Downloadable!] (restricted)
John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 North American Summer Meetings 456, Econometric Society. [Downloadable!]
Other versions:
- John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society. [Downloadable!]
Antoine Martin, 2008. "Reconciling Bagehot with the Fed's response to September 11," Staff Reports 217, Federal Reserve Bank of New York. [Downloadable!]
Leopold von Thadden, 2004. "Active monetary policy, passive fiscal policy and the value of pure debt: some further monetarist arithmetic," Money Macro and Finance (MMF) Research Group Conference 2003 108, Money Macro and Finance Research Group. [Downloadable!]
Bruce D. Smith & Warren E. Weber, 1998. "Private money creation and the Suffolk Banking System," Working Papers 591, Federal Reserve Bank of Minneapolis. [Downloadable!]
Other versions:
- Bruce D. Smith & Warren E. Weber, 1998. "Private money creation and the Suffolk Banking System," Working Paper 9821, Federal Reserve Bank of Cleveland. [Downloadable!]
- Smith, Bruce D & Weber, Warren E, 1999. "Private Money Creation and the Suffolk Banking System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 624-59, August.
- Bruce D. Smith & Warren E. Weber, 1999. "Private money creation and the Suffolk Banking System," Proceedings, Federal Reserve Bank of Cleveland, pages 624-667.
Andreas Schabert, 2003. "On the Relevance of Open Market Operations," Working Paper Series in Economics 4, University of Cologne, Department of Economics. [Downloadable!]
Other versions:
- Andreas Schabert, 2004. "On the Relevance of Open Market Operations," 2004 Meeting Papers 272, Society for Economic Dynamics. [Downloadable!]
- Schabert, Andreas, 2004. "On the Relevance of Open Market Operations," Discussion Paper Series 26344, Hamburg Institute of International Economics. [Downloadable!]
Burkhard Heer & Andreas Schabert, 2000. "Open Market Operations as a Monetary Policy Shock Measure in a Quantitative Business Cycle Model," Econometric Society World Congress 2000 Contributed Papers 1040, Econometric Society. [Downloadable!]
Other versions:
- Burkhard Heer & Andreas Schabert, 2000. "Open Market Operations as a Monetary Policy Shock Measure in a Quantitative Business Cycle Model," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Stacey L. Schreft & Bruce D. Smith, 1999. "The evolution of cash transactions : some implications for monetary policy," Research Working Paper 99-02, Federal Reserve Bank of Kansas City. [Downloadable!]
Other versions:
- Stacey L. Schreft & Bruce D. Smith, 1997. "The evolution of cash transactions: some implications for monetary policy," Financial Services working paper 97-04, Federal Reserve Bank of Cleveland. [Downloadable!]
- Schreft, Stacey L. & Smith, Bruce D., 2000. "The evolution of cash transactions: Some implications for monetary policy," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 97-120, August. [Downloadable!] (restricted)
Beatrix Paal & Bruce D. Smith, 2001. "The sub-optimality of the Friedman rule and the optimum quantity of money," IEHAS Discussion Papers 0113, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Tinbergen Institute Discussion Papers 06-025/2, Tinbergen Institute. [Downloadable!]
Other versions:
- Andreas Schabert, . "Central bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Working Papers 2003_5, Department of Economics, University of Glasgow, revised Jan 2003. [Downloadable!]
- Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 742-762, October. [Downloadable!] (restricted)
Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2005. "Optimal Monetary Policy and Economic Growth," Staff General Research Papers 12413, Iowa State University, Department of Economics. [Downloadable!]
Other versions:
- Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2009. "Optimal monetary policy and economic growth," European Economic Review, Elsevier, vol. 53(2), pages 210-221, February. [Downloadable!] (restricted)
S. Boragan Aruoba & Christopher J. Waller & Randall Wright, 2007. "Money and capital," Working Paper 0714, Federal Reserve Bank of Cleveland. [Downloadable!]
Other versions:
- S. Boragan Aruoba & Christopher J. Waller, 2005. "Money and Capital," 2005 Meeting Papers 550, Society for Economic Dynamics. [Downloadable!]
Joydeep Bhattacharya & Joseph Haslag & Antoine Martin, 2005. "The Tobin effect and the Friedman rule," Staff Reports 224, Federal Reserve Bank of New York. [Downloadable!]
Sangmok Choi & Bruce D. Smith & John H. Boyd, 1996. "Inflation, financial markets and capital formation," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 9-35. [Downloadable!]
Other versions:
- John H. Boyd & Sangmok Choi & Bruce D. Smith, 1995. "Inflation, financial markets, and capital formation," Working Papers 556, Federal Reserve Bank of Minneapolis. [Downloadable!]
Stacey L. Schreft & Bruce D. Smith, 1994. "Money, banking, and capital formation," Working Paper 94-05, Federal Reserve Bank of Richmond. [Downloadable!]
Other versions:
- Schreft, Stacey L. & Smith, Bruce D., 1997. "Money, Banking, and Capital Formation," Journal of Economic Theory, Elsevier, vol. 73(1), pages 157-182, March. [Downloadable!] (restricted)
Robert R. Reed & Stacey L. Schreft, 2007. "Phillips curves, monetary policy, and a labor market transmission mechanism," Research Working Paper RWP 07-12, Federal Reserve Bank of Kansas City. [Downloadable!]
Rangan Gupta, 2004. "Costly State Monitoring and Reserve Requirements," Working papers 2004-33, University of Connecticut, Department of Economics, revised Jul 2005. [Downloadable!]
Philippe Michel & Bertrand Wigniolle, 2005. "Cash-in-advance constraints, bubbles and monetary policy," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00268861_v1, HAL. [Downloadable!]
Other versions:
- Michel, Philippe & Wigniolle, Bertrand, 2005. "Cash-In-Advance Constraints, Bubbles, And Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 9(01), pages 28-56, February. [Downloadable!]

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