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The Corridor's Width as a Monetary Policy Tool

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  • Guillaume A. Khayat

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

Credit institutions borrow liquidity from the central bank's lending facility and deposit (excess) reserves at its deposit facility. The central bank directly controls the corridor: the non-market interest rates of its lending and deposit facilities. Modifying the corridor changes the conditions on the interbank market and allows the central bank to set the short-term interest rate in the economy. This paper assesses the use of the corridor's width as an additional tool for monetary policy. Results indicate that a symmetric widening of the corridor boosts output and welfare while addressing the central bank's concerns over higher risk-taking in the economy.

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  • Guillaume A. Khayat, 2017. "The Corridor's Width as a Monetary Policy Tool," Working Papers halshs-01611650, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01611650
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01611650
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    References listed on IDEAS

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    Keywords

    monetary policy; interbank market; heterogeneous interbank frictions; the corridor; excess reserves; financial intermediation;
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