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International Monetary Transmission with Bank Heterogeneity and Default Risk

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  • Tsvetomira Tsenova

Abstract

This paper compares the effectiveness, efficiency and robustness of standard and non-standard monetary policy tools, such as the banks’ refinancing interest rate, penalty interest rate on deposit facility holdings and minimum reserve requirements on attracted deposits. The assessment is performed on the basis of a numerically evaluated open economy general equilibrium model for macro-prudential analysis where optimal decisions by internationally linked banks are key determinants of international financial flows and wider economic outcomes. Banks differ in terms of balance sheet endowments and risk preferences, and take decisions rationally and competitively. Default risk, borrowing and lending are endogenous results of individual decisions of private agents (banks and households), as well as systemic outcomes of market interaction.

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Bibliographic Info

Paper provided by FIW in its series FIW Working Paper series with number 110.

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Length: 28
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:wsr:wpaper:y:2013:i:110

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Keywords: Banking; Monetary Policy; Non-standard Instruments; Macro-Prudential Policies; Financial Stability; Contingency Planning;

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  1. Whitesell, William, 2006. "Interest rate corridors and reserves," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1177-1195, September.
  2. Choi, Woon Gyu & Cook, David, 2004. "Liability dollarization and the bank balance sheet channel," Journal of International Economics, Elsevier, vol. 64(2), pages 247-275, December.
  3. Dimitrios P Tsomocos & Charles A.E. Goodhart, 2004. "A Risk Assessment Model for Banks," Economics Series Working Papers 2004-FE-11, University of Oxford, Department of Economics.
  4. Charles Goodhart, 2010. "The changing role of central banks," BIS Working Papers 326, Bank for International Settlements.
  5. Orphanides, Athanasios, 2010. "Monetary Policy Lessons from the Crisis," CEPR Discussion Papers 7891, C.E.P.R. Discussion Papers.
  6. Charles Goodhart, 2010. "The Changing Role of Central Banks," FMG Special Papers sp197, Financial Markets Group.
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