Confidence Cycles and Liquidity Hoarding

Volha Audzei

International Journal of Central Banking, 2022, vol. 18, issue 3, 281-320

Abstract: Market confidence has proved to be an important factor during past economic crises. In this paper, I incorporate a model of the interbank market into a DSGE model, with the volume of lending depending on market confidence. I conduct an exercise to mimic some central bank policies: provision of liquidity and reduction of the reserve rate. My results indicate that policy actions have a limited effect on the supply of credit if they fail to influence agents' expectations. A low reserve rate policy worsens recessions due to its negative impacts on bank revenues.

JEL-codes: E58 E65 E71 G01 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Confidence Cycles and Liquidity Hoarding (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2022:q:3:a:7

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