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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
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    2. Jia, Pengfei, 2021. "Understanding a New Keynesian Model with Liquidity," MPRA Paper 108286, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monetary Economics; Monetary Policy; Credit Channel;
    All these keywords.

    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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