The Role of Interbank Markets in Monetary Policy: A Model with Rationing

Xavier Freixas () and Jos… Jorge

Journal of Money, Credit and Banking, 2008, vol. 40, issue 6, 1151-1176

Abstract: This paper analyzes the impact of asymmetric information in the interbank market and establishes its crucial role in the microfoundations of the monetary policy transmission mechanism. We show that interbank market imperfections induce an equilibrium with rationing in the credit market. This has two major implications: first, it reconciles the irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy ("magnitude effect"), and second, it shows that banks' liquidity positions condition their reaction to monetary policy ("Kashyap and Stein liquidity effect"). Copyright (c) 2008 The Ohio State University.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (151)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:40:y:2008:i:6:p:1151-1176

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().