Central Banks and Market Interest Rates

Iris Biefang-Frisancho and Peter Howells

Journal of Post Keynesian Economics, 2002, vol. 24, issue 4, 569-585

Abstract: In a world of endogenous money, the central bank’s role in monetary policy is reduced to the setting of a very short-term official rate of interest, which indicates the price at which it will make liquidity available to the banking system. However; it is changes in market rates that affect behavior; and so the ability of the central bank to influence anything at all depends, first, on the interaction between official and market rates. In this paper; we use a vector autogressive error correction model to explore the response to changes in the central bank rate of three short-term market rates that have beenfeatured previously in this journal in debates about the demand for endogenous money.

Date: 2002
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DOI: 10.1080/01603477.2002.11490344

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