Channel systems: Why is there a positive spread?

Aleksander Berentsen, Alessandro Marchesiani () and Christopher Waller

No 2010-049, Working Papers from Federal Reserve Bank of St. Louis

Abstract: An increasing number of central banks implement monetary policy via two standing facilities: a lending facility and a deposit facility. In this paper we show that it is socially optimal to implement a non-zero interest rate spread. We prove this result in a dynamic general equilibrium model where market participants have heterogeneous liquidity needs and where the central bank requires government bonds as collateral. We also calibrate the model and discuss the behavior of the money market rate and the volumes traded at the ECB?s deposit and lending facilities in response to the recent financial crisis.

Keywords: Monetary policy; Open market operations; Banks and banking, Central (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cba and nep-dge
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Citations: View citations in EconPapers (3)

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Working Paper: Channel Systems: Why is there a Positive Spread? (2010)
Working Paper: Channel systems: why is there a positive spread? (2010)
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