Channel systems: why is there a positive spread?

Aleksander Berentsen, Alessandro Marchesiani () and Christopher Waller

No 517, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

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; standing facilities (search for similar items in EconPapers)
JEL-codes: E52 E58 E59 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://www.zora.uzh.ch/id/eprint/51776/1/iewwp517.pdf (application/pdf)

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:517

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