Banks, Liquidity Management, and Monetary Policy

Javier Bianchi and Saki Bigio

Econometrica, 2022, vol. 90, issue 1, 391-454

Abstract: We develop a tractable model of banks' liquidity management with an over‐the‐counter interbank market to study the credit channel of monetary policy. Deposits circulate randomly across banks and must be settled with reserves. We show how monetary policy affects the banking system by altering the trade‐off between profiting from lending and incurring greater liquidity risk. We present two applications of the theory, one involving the connection between the implementation of monetary policy and the pass‐through to lending rates, and another considering a quantitative decomposition behind the collapse in bank lending during the 2008 financial crisis. Our analysis underscores the importance of liquidity frictions and the functioning of interbank markets for the conduct of monetary policy.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
https://doi.org/10.3982/ECTA16599

Related works:
Working Paper: Banks, Liquidity Management and Monetary Policy (2014)
Working Paper: Banks, Liquidity Management, and Monetary Policy (2014)
Working Paper: Banks, Liquidity Management and Monetary Policy (2014)
Working Paper: Banks, Liquidity Management and Monetary Policy (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:90:y:2022:i:1:p:391-454

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Guido W. Imbens

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().