Modeling Monetary Policy

Arbeitspapier

We develop a macroeconomic framework where money issupplied against only few eligible securities in open marketoperations. The relationship between the policy rate,expected inflation and consumption growth is affected bymoney market conditions, i.e. the varying liquidity value ofeligible assets and the associated risk. This induces a liquiditypremium, which explains the observed systematic wedgebetween the policy rate and consumption Euler interest ratethat standard models equate. It further implies a dampenedresponse of consumption to policy rate shocks that is humpshapedwhen we account for realistic central bank transfersand the dynamics of bond holdings.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 09-094/2

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; Interest Rates: Determination, Term Structure, and Effects ; Business Fluctuations; Cycles
• Subject: Monetary policy ; Open market operations ; Liquidity ; Geldpolitik ; Liquidität ; Inflationserwartung ; Gesamtwirtschaftlicher Konsum ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Reynard, Samuel ; Schabert, Andreas
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/86960
• Last update: 10.03.2025, 11:44 AM CET