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Monetary policy in a channel system

  • Aleksander Berentsen
  • Cyril Monnet

Channel systems for conducting monetary policy are becoming increasingly popular. Despite its popularity, the consequences of implementing policy with a channel system are not well understood. The authors develop a general equilibrium framework of a channel system and study the optimal policy. A novel aspect of the channel system is that a central bank can "tighten" or "loosen" its policy without changing its policy rate. This policy instrument has so far been overlooked by a large body of the literature on the optimal design of interest-rate rules.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 08-7.

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Date of creation: 2008
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Handle: RePEc:fip:fedpwp:08-7
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