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Optimal Monetary Policy in a Channel System of Interest-Rate Control

Aleksander Berentzen () and Cyril Monnet
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Aleksander Berentzen: University of Basel

Authors registered in the RePEc Author Service: Aleksander Berentsen

No 572, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies optimal interest-rate policies when the central bank operates a channel system of interest-rate control. We conduct our analysis in a dynamic general equilibrium model with infinitely-lived agents who are subject to idiosyncratic trading shocks which generate random liquidity needs. In response to these shocks agents either borrow against collateral or deposit money at the central bank at the specified rates. We show that it is optimal to have a strictly positive interest-rate corridor if the opportunity cost of holding collateral is strictly positive and that the optimal corridor is strictly decreasing in the collateral's real return

Keywords: Optimal Monetary Policy; Channel System; Interest Rate Rule; Essential Money (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:572

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