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Monetary Policy Implementation: A Microstructure Approach

In: David Laidler’s Contributions to Economics

Author

Listed:
  • Perry Mehrling
  • Neil T. Skaggs

Abstract

In classic central banking theory, the ‘discount house’ played a central role (Bagehot, 1873, Sayers, 1976).1 As holders of short-term commercial bills, the discount houses financed the holding of goods on their way from producers to consumers, and, in turn, financed themselves primarily by borrowing from banks. Just so, an expansion of trade went hand in hand with an expansion of both the assets and liabilities of the discount houses, and also an expansion of both the assets and liabilities of the banking system. Looking through the balance sheet relationships, it was clear to observers that the expansion of trade was financed by an expansion of bank money, meaning the deposit liabilities of the banking system.

Suggested Citation

  • Perry Mehrling & Neil T. Skaggs, 2010. "Monetary Policy Implementation: A Microstructure Approach," Palgrave Macmillan Books, in: Robert Leeson (ed.), David Laidler’s Contributions to Economics, chapter 10, pages 212-234, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-24841-0_10
    DOI: 10.1057/9780230248410_10
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    Cited by:

    1. Mehrling, Perry, 2013. "Essential hybridity: A money view of FX," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 355-363.

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