Central Bank Liquidity Management and “Unconventional” Monetary Policies
We present a small-open-economy model to analyze the role of central bank’s liquidity management in implementing “unconventional” monetary policies within an inflation targeting framework. In particular, we explicitly model the facilities that the central bank uses to manage the liquidity in the economy, which creates a role for the central bank balance sheet in equilibrium. This allows analyzing 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 later as a response to the recent global financial crisis in 2008. As a case study, we provide a detailed account of the Chilean experience with these alternative tools, and provide a quantitative evaluation of the effects of some of these policies.
Volume (Year): Volume 15 Number 1 (2014)
Issue (Month): Fall 2014 (June)
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