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Asset prices and standing facilities in a monetary economy

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  • Matsuoka, Tarishi

Abstract

This paper develops a general equilibrium model of money and banking in which the central bank operates two facilities: a lending facility and a deposit facility. With aggregate uncertainty about liquidity demands, a bank exhausts its monetary reserves and borrows a central bank loan by pledging collateral in some states of nature. The model shows that changing the interest-rate corridor, defined as the difference between the lending and the deposit rates, generates responses in the bank’s portfolio choice, asset prices, welfare, and the liquidity structure of assets’ yields. The model also yields novel policy implications in a channel system.

Suggested Citation

  • Matsuoka, Tarishi, 2022. "Asset prices and standing facilities in a monetary economy," Journal of Economic Dynamics and Control, Elsevier, vol. 135(C).
  • Handle: RePEc:eee:dyncon:v:135:y:2022:i:c:s0165188922000070
    DOI: 10.1016/j.jedc.2022.104302
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset price; Money; Standing facilities; Banking;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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