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Monetary Policy in a Channel System

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  • Aleksander Berentsen
  • Cyril Monet

Abstract

This paper studies the theoretical properties of a channel system of interestrate control in a dynamic general equilibrium model. Agents are subject to liquidity shocks which can be partially insured in a secured money market, or at a standing facility operated by the central bank. We show that it is optimal to have a strictly positive interest rate corridor and that a shift of the corridor affects the money market rate one for one. Moreover, the central bank can tighten its policy without changing its policy rate by simply increasing the corridor symmetrically around the policy rate.

Suggested Citation

  • Aleksander Berentsen & Cyril Monet, 2006. "Monetary Policy in a Channel System," IEW - Working Papers 295, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:295
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Monetary Policy; Interest Rates; Search;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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