Excess Liquidity, Bank Pricing Rules, and Monetary Policy
Pierre-Richard Agénor () and
Karim El Aynaoui ()
Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester
This paper analyzes the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on firms’ net worth. The demand for excess reserves is determined by precautionary factors and opportunity cost variables. The basic framework is used to examine the impact of a change in the refinance rate and the required reserve ratio. The analysis is then extended to account for the impact of excess liquidity on bank pricing rules and macroeconomic equilibrium. Symmetric and asymmetric rules are shown to provide new explanations of the “price puzzle” or “stagflationary” effect associated with contractionary monetary policy.
Pages: 39 pages
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
http://hummedia.manchester.ac.uk/schools/soss/cgbc ... apers/dpcgbcr105.pdf (application/pdf)
Journal Article: Excess liquidity, bank pricing rules, and monetary policy (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:105
Access Statistics for this paper
More papers in Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Marianne Sensier ().