Liquidity regulation and the implementation of monetary policy

Morten Bech () and Todd Keister

Journal of Monetary Economics, 2017, vol. 92, issue C, 64-77

Abstract: We study the impact of the Basel III liquidity coverage ratio (LCR) on interbank interest rates in an otherwise-standard model of monetary policy implementation. When banks face the possibility of an LCR shortfall, the overnight interest rate tends to decrease, while a regulatory premium arises in longer-term rates. In addition, the LCR requirement can substantially alter the effect of a central banks’ open market operations on equilibrium interest rates.

Keywords: Basel III; Liquidity coverage ratio (LCR); Central bank reserves; Corridor system; Floor system; Monetary policy implementation (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G28 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Related works:
Working Paper: Liquidity regulation and the implementation of monetary policy (2013)
Working Paper: Liquidity regulation and the implementation of monetary policy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:92:y:2017:i:c:p:64-77

DOI: 10.1016/j.jmoneco.2017.09.002

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