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Monetary Policy Operations: Theory, Evidence, and Tools for Quantitative Analysis

Author

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  • Ricardo Lagos
  • Gastón Navarro

Abstract

We formulate a quantitative dynamic equilibrium theory of trade in the fed funds market, calibrate it to fit a comprehensive set of market-wide and micro-level cross-sectional observations, and use it to make two contributions to the operational side of monetary policy implementation. First, we produce global structural estimates of the aggregate demand for reserves—a crucial decision-making input for modern central banks. Second, we propose diagnostic tools to gauge the central bank’s ability to track a given fed funds target, and the heterogeneous incidence of policy actions on the shadow cost of funding across banks.

Suggested Citation

  • Ricardo Lagos & Gastón Navarro, 2023. "Monetary Policy Operations: Theory, Evidence, and Tools for Quantitative Analysis," NBER Working Papers 31370, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31370
    Note: ME
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    Citations

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    Cited by:

    1. Narayan Bulusu & Matthew McNeely & Kaetlynd McRae & Jonathan Witmer, 2023. "Estimating the Appropriate Quantity of Settlement Balances in a Floor System," Discussion Papers 2023-26, Bank of Canada.
    2. Egemen Eren & Timothy Jackson & Giovanni Lombardo, 2024. "The macroprudential role of central bank balance sheets," Working Papers 202408, University of Liverpool, Department of Economics.
    3. Egemen Eren & Timothy Jackson & Giovanni Lombardo, 2024. "The macroprudential role of central bank balance sheets," BIS Working Papers 1173, Bank for International Settlements.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • G1 - Financial Economics - - General Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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