Monetary policy in a channel system |
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Authors: | Aleksander Berentsen Cyril Monnet |
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Affiliation: | a Department of Economics, University of Basel, Switzerland b Federal Reserve Bank of Philadelphia, USA |
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Abstract: | Channel systems for conducting monetary policy are becoming increasingly popular. Despite its popularity, the consequences of implementing policy with a channel system are not well understood. We develop a general equilibrium framework of a channel system and study the optimal policy. A novel aspect of the channel system is that a central bank can “tighten” or “loosen” its policy without changing its policy rate. This policy instrument has so far been overlooked by a large body of the literature on the optimal design of interest-rate rules. |
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Keywords: | E40 E50 D83 |
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