Optimal Central Bank Lending

Andreas Schabert

No 10-057/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We analyze optimal monetary policy in a sticky pricemodel where the central bank supplies money outrightvia asset purchases and lends money temporarily againstcollateral. The terms of central bank lending affect ra-tioning of money and impact on macroeconomic aggre-gates. The central bank can set the policy rate and itsinflation target in a way that implements the first bestlong-run allocation, which is impossible if money weresupplied in a lump-sum way (as commonly assumed).Efficient central bank lending further increases gainsfrom macroeconomic stabilization beyond pure interestrate policy. This requires departing from a "Treasuries-only" regime.

Keywords: Optimal monetary policy; central bank instruments; collateralized lending; liquidity premium; inflation (search for similar items in EconPapers)
JEL-codes: E32 E4 E5 (search for similar items in EconPapers)
Date: 2010-06-21
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Citations: View citations in EconPapers (3)

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Journal Article: Optimal central bank lending (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100057

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