Asset prices and standing facilities in a monetary economy
Journal of Economic Dynamics and Control, 2022, vol. 135, issue C
This paper develops a general equilibrium model of money and banking in which the central bank operates two facilities: a lending facility and a deposit facility. With aggregate uncertainty about liquidity demands, a bank exhausts its monetary reserves and borrows a central bank loan by pledging collateral in some states of nature. The model shows that changing the interest-rate corridor, defined as the difference between the lending and the deposit rates, generates responses in the bank’s portfolio choice, asset prices, welfare, and the liquidity structure of assets’ yields. The model also yields novel policy implications in a channel system.
Keywords: Asset price; Money; Standing facilities; Banking (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:135:y:2022:i:c:s0165188922000070
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