Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy

Eric Monnet and Miklos Vari

No 2019/176, IMF Working Papers from International Monetary Fund

Abstract: This paper explores what history can tell us about the interactions between macroprudential and monetary policy. Based on numerous historical documents, we show that liquidity ratios similar to the Liquidity Coverage Ratio (LCR) were commonly used as monetary policy tools by central banks between the 1930s and 1980s. We build a model that rationalizes the mechanisms described by contemporary central bankers, in which an increase in the liquidity ratio has contractionary effects, because it reduces the quantity of assets banks can pledge as collateral. This effect, akin to quantity rationing, is more pronounced when excess reserves are scarce.

Keywords: WP; discount window; money market; bank liquidity; discount rate; Specialness; repo market; asset purchases; securities reserves requirements; monetary policy tool; securities requirements; Fed official; Fed system; central bank control; securities-reserve requirement; monetary management; Reserve requirements; Liquidity requirements; Liquidity management; Government securities; Securities; Europe; Global (search for similar items in EconPapers)
Pages: 48
Date: 2019-08-16
New Economics Papers: this item is included in nep-ban, nep-his, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=47004 (application/pdf)

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:imf:imfwpa:2019/176

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().