The Role of Central Bank Lending in the Conduct of Monetary Policy

Huberto Ennis and John Weinberg

Richmond Fed Economic Brief, 2016, issue December

Abstract: Central banks can extend credit in pursuit of different policy objectives, two of which are discussed in this Economic Brief. First, lending can be used to achieve interest rate control. Second, lending can be used to provide liquidity insurance. A narrow view of central bank lending emphasizes the first objective, in which subsidized credit to targeted market participants is not seen as essential. A broader view considers targeted lending as sometimes necessary. Which perspective is favored is largely, though not wholly, dependent on judgments about the prevalence of frictions that inhibit the market's ability to allocate liquidity.

Date: 2016
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