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Optimal Monetary Policy in a Channel System of Interest-Rate Control

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  • Aleksander Berentzen

    ()
    (University of Basel)

  • Cyril Monnet

Abstract

This paper studies optimal interest-rate policies when the central bank operates a channel system of interest-rate control. We conduct our analysis in a dynamic general equilibrium model with infinitely-lived agents who are subject to idiosyncratic trading shocks which generate random liquidity needs. In response to these shocks agents either borrow against collateral or deposit money at the central bank at the specified rates. We show that it is optimal to have a strictly positive interest-rate corridor if the opportunity cost of holding collateral is strictly positive and that the optimal corridor is strictly decreasing in the collateral's real return

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File URL: http://repec.org/sed2006/up.1038.1140013610.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 572.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:572

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Keywords: Optimal Monetary Policy; Channel System; Interest Rate Rule; Essential Money;

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  1. Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
  2. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-60, July.
  3. Braggion, F. & Christiano, L. & Roldos, J., 2007. "Optimal Monetary Policy in a Sudden Stop," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3107633, Tilburg University.
  4. Charles Goodhart, 1989. "Money, Information and Uncertainty: 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262071223, December.
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