The interplay between liquidity regulation, monetary policy implementation and financial stability

Todd Keister

Global Finance Journal, 2019, vol. 39, issue C, 30-38

Abstract: I outline a simple framework for thinking through how the Basel III liquidity regulations – in particular, the Liquidity Coverage Ratio (LCR) – will impact short-term interest rates and the process of monetary policy implementation. This framework suggests that a regulatory premium may arise in some market interest rates, creating a new wedge in the monetary transmission mechanism. I discuss ways in which a central bank could react to this new wedge, highlighting what may be a fundamental tension between implementing monetary policy effectively and using liquidity regulation to promote financial stability.

Keywords: Basel III; Liquidity coverage ratio (LCR); Interbank markets; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Chapter: The Interplay Between Liquidity Regulation, Monetary Policy Implementation and Financial Stability (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:39:y:2019:i:c:p:30-38

DOI: 10.1016/j.gfj.2018.01.013

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