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Standing Facilities Versus Open Market Operations: Equivalence Results

  • Alessandro Marchesiani

    (University of Minho)

  • Aleksander Berentsen

    (University of Basel)

In this paper we compare two mechanisms for implementing monetary policy: standing facilities and open market operations. We show that any equilibrium allocation that can be attained with open market operations can be replicated with standing facilities, but that the converse is not true. Furthermore, the set of equilibrium allocations that can be attained with standing facilities is weakly dominated in terms of welfare by the set of equilibrium allocations that can be attained with open market operations. However, if the central bank chooses the optimal policy for each mechanism, the allocations are equivalent.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 929.

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Date of creation: 2010
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Handle: RePEc:red:sed010:929
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