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Exit strategies for monetary policy

Listed author(s):
  • Aleksander Berentsen
  • Sébastien Kraenzlin
  • Benjamin Müller

In response to the financial crisis of 2007/08, all major central banks decreased interest rates to historically low levels and created large excess reserves. Central bankers currently discuss how to raise interest rates in such an environment. The term "exit strategy" refers to the various policies that allow central banks to achieve this objective. Exit instruments such as paying interest on reserves, term deposits, central bank bills and reverse repos are evaluated with respect to the central bank's ability to control the money market interest rate and their impact on money market trading activity, welfare, inflation and taxes. Each instrument is investigated under two polar coordination regimes: monetary dominance and fiscal dominance.

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File URL: http://www.econ.uzh.ch/static/wp/econwp241.pdf
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Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 241.

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Date of creation: Dec 2016
Handle: RePEc:zur:econwp:241
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  1. Gara Afonso & Ricardo Lagos, 2015. "Trade Dynamics in the Market for Federal Funds," Econometrica, Econometric Society, vol. 83, pages 263-313, 01.
  2. Williamson, Stephen D., 2015. "Interest on Reserves, Interbank Lending, and Monetary Policy," Working Papers 2015-24, Federal Reserve Bank of St. Louis.
  3. Martin, Antoine & Monnet, Cyril, 2011. "Monetary Policy Implementation Frameworks: A Comparative Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 145-189, April.
  4. Sébastien Kraenzlin & Thomas Nellen, 2010. "Daytime Is Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1689-1702, December.
  5. Kraenzlin, Sébastien & Schlegel, Martin, 2012. "Bidding behavior in the SNB’s repo auctions," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 170-188.
  6. Sébastien Kraenzlin & Martin Schlegel, 2012. "Demand for Reserves and the Central Bank's Management of Interest Rates," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(IV), pages 531-555, December.
  7. Cúrdia, Vasco & Woodford, Michael, 2011. "The central-bank balance sheet as an instrument of monetarypolicy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 54-79, January.
  8. Jackson, Christopher & Sim , Mathew, 2013. "Recent developments in the sterling overnight money market," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 223-233.
  9. Berentsen, Aleksander & Monnet, Cyril, 2008. "Monetary policy in a channel system," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1067-1080, September.
  10. Roc Armenter & Benjamin Lester, 2017. "Excess Reserves and Monetary Policy Implementation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 212-235, January.
  11. Basil Guggenheim & Sébastien Philippe Kraenzlin & Silvio Schumacher, 2011. "Exploring an uncharted market: Evidence on the unsecured Swiss franc money market," Working Papers 2011-05, Swiss National Bank.
  12. Stephen D. Williamson, 2012. "Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach," American Economic Review, American Economic Association, vol. 102(6), pages 2570-2605, October.
  13. Aleksander Berentsen & Alessandro Marchesiani & Christopher Waller, 2014. "Floor Systems for Implementing Monetary Policy: Some Unpleasant Fiscal Arithmetic," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 523-542, July.
  14. Williamson, Stephen D., 2016. "Scarce collateral, the term premium, and quantitative easing," Journal of Economic Theory, Elsevier, vol. 164(C), pages 136-165.
  15. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
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