The Corridor's Width as a Monetary Policy Tool

Guillaume Khayat ()
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Guillaume Khayat: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: Credit institutions borrow liquidity from the central bank's lending facility and deposit (excess) reserves at its deposit facility. The central bank directly controls the corridor: the non-market interest rates of its lending and deposit facilities. Modifying the corridor changes the conditions on the interbank market and allows the central bank to set the short-term interest rate in the economy. This paper assesses the use of the corridor's width as an additional tool for monetary policy. Results indicate that a symmetric widening of the corridor boosts output and welfare while addressing the central bank's concerns over higher risk-taking in the economy.

Keywords: monetary policy; interbank market; heterogeneous interbank frictions; the corridor; excess reserves; financial intermediation (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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