Central Bank Liquidity Management and “Unconventional” Monetary Policies
AbstractThis paper presents a small open economy model to analyze the role of central bank liquidity management in implementing “unconventional” monetary policies within an inflation targeting framework. In particular, the paper explicitly models the facilities that the central bank uses to manage liquidity in the economy, which creates a role for the central bank balance sheet in equilibrium. This permits the analysis of two “unconventional” policies: sterilized exchange-rate interventions and expanding the list of eligible collaterals accepted at the liquidity facilities operated by the central bank. These policies have been recently implemented by several central banks: the former as a way to counteract persistent appreciations in the domestic currency, and the latter as a response to the recent global financial crisis in 2008. As a case study, the paper provides a detailed account of the Chilean experience with these alternative tools, as well as a quantitative evaluation of the effects of some of these policies.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number IDB-WP-484.
Date of creation: Feb 2014
Date of revision:
Other versions of this item:
- Enrique Kawamura & Javier García-Cicco, 2014. "Central Bank Liquidity Management and "Unconventional" Monetary Policies," IDB Publications 84108, Inter-American Development Bank.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-09-08 (All new papers)
- NEP-DGE-2014-09-08 (Dynamic General Equilibrium)
- NEP-MAC-2014-09-08 (Macroeconomics)
- NEP-MON-2014-09-08 (Monetary Economics)
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