Bank liquidity preference and the investment demand constraint
Aggregate bank liquidity preference is postulated to engender an investment demand constraint. This idea is integrated into a stochastic dynamic structural macroeconomic model to study output and inflation fluctuations. The model has two regimes that allows for examining output and inflation adjustments over time given a change in commercial bank mark-up lending rate, quantitative easing and stochastic output shocks. The two financial regimes are: (i) an investment demand constraint regime; and (ii) a bank liquidity trap regime. The time adjustment of output and inflation given a change in mark-up lending rate and monetary easing depends on the financial regime in which the economy finds itself. Adjustments owing to stochastic output shocks do not depend on the financial regime. The nature of the regime is determined by the level of the mark-up lending rate and its strength of adjustment over time relative to the competitive loanable funds rate.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Todd Keister & James J. McAndrews, 2009.
"Why are banks holding so many excess reserves?,"
Current Issues in Economics and Finance,
Federal Reserve Bank of New York, vol. 15(Dec).
- Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Staff Reports 380, Federal Reserve Bank of New York.
- Dani Rodrik & Arvind Subramanian, 2009. "Why Did Financial Globalization Disappoint?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 112-138, April.
- Stiglitz, Joseph E, 1989. "Financial Markets and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 55-68, Winter.
- Magnus Saxegaard, 2006. "Excess Liquidity and Effectiveness of Monetary Policy; Evidence from Sub-Saharan Africa," IMF Working Papers 06/115, International Monetary Fund.
- Haughton, Andre Yone & Iglesias, Emma M., 2012. "Interest rate volatility, asymmetric interest rate pass through and the monetary transmission mechanism in the Caribbean compared to US and Asia," Economic Modelling, Elsevier, vol. 29(6), pages 2071-2089.
- Poghosyan, Tigran, 2013. "Financial intermediation costs in low income countries: The role of regulatory, institutional, and macroeconomic factors," Economic Systems, Elsevier, vol. 37(1), pages 92-110.
- Tigran Poghosyan, 2012. "Financial Intermediation Costs in Low-Income Countries; The Role of Regulatory, Institutional, and Macroeconomic Factors," IMF Working Papers 12/140, International Monetary Fund.
- Ryu‐ichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 335-357, May.
- Ryu-ichiro Murota & Yoshiyasu Ono, 2009. "Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap," ISER Discussion Paper 0748, Institute of Social and Economic Research, Osaka University.
- Charles Goodhart & Boris Hofmann, 2005. "The IS curve and the transmission of monetary policy: is there a puzzle?," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 29-36.
- Charles Goodhart & Boris Hofmann, 2003. "The IS Curve and the Transmission of Monetary Policy: Is there a Puzzle?," FMG Special Papers sp150, Financial Markets Group.
- Goodhart, Charles A. E. & Hofmann, Boris, 2003. "The IS curve and the transmission of monetary policy: Is there a puzzle?," ZEI Working Papers B 13-2003, University of Bonn, ZEI - Center for European Integration Studies.
- Gauti B. Eggertsson & Jonathan David Ostry, 2005. "Does Excess Liquidity Pose a Threat in Japan?," IMF Policy Discussion Papers 05/5, International Monetary Fund.
- Tarron Khemraj, 2010. "What does excess bank liquidity say about the loan market in Less Developed Countries?," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 86-113, January.
- Petrevski, Goran & Bogoev, Jane, 2012. "Interest rate pass-through in South East Europe: An empirical analysis," Economic Systems, Elsevier, vol. 36(4), pages 571-593. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:977-990. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.