Monetary Policy, Liquidity Stress and Learning Dynamics
This paper examines the interactions between monetary policy and stability of interbank money markets. After showing some empirical evidence of a central bank's concern for money market stability I derive a forward smoothing interest rate rule moving from an explicit target in terms of a liquidity stress indicator. The implications of this approach on equilibrium determinacy and learnability are analyzed. I show that equilibrium uniqueness is not necessarily compatible with equilibrium learnability, and learnability, in general, has tighter requirements than determinacy.
|Date of creation:||2011|
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