Interest on reserves and monetary policy of targeting both interest rate and money supply

Duong Ngotran

MPRA Paper from University Library of Munich, Germany

Abstract: We build a dynamic model with currency, demand deposits and bank reserves. The monetary base is controlled by the central bank, while the money supply is determined by the interactions between the central bank, banks and public. In banking crises when banks cut loans, a Taylor rule is not efficient. Negative interest on reserves or forward guidance is effective, but deflation is still likely to be persistent. If the central bank simultaneously targets both the interest rate and the money supply by a Taylor rule and a Friedman's k-percent rule, inflation and output are stabilized.

Keywords: interest on reserves; negative interest on reserves; forward guidance; monetary base; endogenous money supply (search for similar items in EconPapers)
JEL-codes: E4 E42 E5 E51 (search for similar items in EconPapers)
Date: 2017-08-30
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81579

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