Floor systems for implementing monetary policy: Some unpleasant fiscal arithmetic

Arbeitspapier

An increasing number of central banks implement monetary policy via a channel system or a floor system. We construct a general equilibrium model to study the properties of these systems. We find that the optimal framework is a floor system if and only if the target rate satisfies the Friedman rule. Unfortunately, the optimal floor system requires either transfers from the fiscal authority to the central bank or a reduction in seigniorage payments from the central bank to the government. This is the unpleasant fiscal arithmetic of a floor system. When the central bank faces financing constraints on its interest expense, we show that it is optimal to operate a channel system.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 121

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; Monetary Policy, Central Banking, and the Supply of Money and Credit: Other
• Subject: monetary policy ; floor system ; channel system ; standing facilities

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berentsen, Aleksander ; Marchesiani, Alessandro ; Waller, Christopher J.
• Event: Veröffentlichung
• (who): University of Zurich, Department of Economics
• (where): Zurich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/77484
• Last update: 10.03.2025, 11:46 AM CET