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A Model of Intermediation, Money, Interest, and Prices

Author

Listed:
  • Saki Bigio

    (University of California, Los Angeles and NBER)

  • Yuliy Sannikov

    (Stanford Business School and NBER)

Abstract

A model integrates a modern implementation of monetary policy (MP) into an incomplete markets monetary economy. Policy sets corridor rates and conducts open-market operations and fiscal transfers. These tools grant independent control over credit spreads and inflation. We study the implementation of spreads and inflation via different MP instruments. Through its influence on spreads, MP affects the evolution of real credit, interests, output, and wealth distribution (both in the long and the short run). We decompose effects through different transmission channels. We study the optimal spread management and find that the active management of spreads is a desirable target.

Suggested Citation

  • Saki Bigio & Yuliy Sannikov, 2019. "A Model of Intermediation, Money, Interest, and Prices," Working Papers 150, Peruvian Economic Association.
  • Handle: RePEc:apc:wpaper:150
    as

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    File URL: http://perueconomics.org/wp-content/uploads/2019/08/WP-150.pdf
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    References listed on IDEAS

    as
    1. Guillaume Rocheteau & Pierre-Olivier Weill & Tsz-Nga Wong, 2015. "Working through the Distribution: Money in the Short and Long Run," NBER Working Papers 21779, National Bureau of Economic Research, Inc.
    2. Gauti B. Eggertsson & Ragnar E. Juelsrud & Lawrence H. Summers & Ella Getz Wold, 2019. "Negative Nominal Interest Rates and the Bank Lending Channel," NBER Working Papers 25416, National Bureau of Economic Research, Inc.
    3. Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, American Economic Association, vol. 108(12), pages 3891-3936, December.
    4. Huberto Ennis & John Weinberg, 2013. "Over-the-counter loans, adverse selection, and stigma in the interbank market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 601-616, October.
    5. Bindseil, Ulrich, 2014. "Monetary Policy Operations and the Financial System," OUP Catalogue, Oxford University Press, number 9780198716907.
    6. Thaler, Dominik, 2018. "A Large Central Bank Balance Sheet? The Role of Interbank Market Frictions," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181632, Verein für Socialpolitik / German Economic Association.
    7. Chao Gu & Fabrizio Mattesini & Randall Wright, 2015. "Money and Credit Redux," Working Papers 1508, Department of Economics, University of Missouri.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monetary Economics; Monetary Policy; Credit Channel;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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