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The Corridor's Width as a Monetary Policy Tool

Guillaume Khayat ()
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Guillaume Khayat: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales

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Abstract: Credit institutions borrow liquidity from the central bank's lending facility and deposit (excess) reserves at its deposit facility. The central bank directly controls the corridor: the non-market interest rates of its lending and deposit facilities. Modifying the corridor changes the conditions on the interbank market and allows the central bank to set the short-term interest rate in the economy. This paper assesses the use of the corridor's width as an additional tool for monetary policy. Results indicate that a symmetric widening of the corridor boosts output and welfare while addressing the central bank's concerns over higher risk-taking in the economy.

Keywords: excess reserves; the corridor; monetary policy; interbank market; heterogeneous interbank frictions; financial intermediation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2017-10
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01611650
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