Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192879 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 241
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
In response to the financial crisis of 2007/08, all major central banks decreased interest rates to historically low levels and created large excess reserves. Central bankers and academics currently discuss how to implement monetary policy, going forward. We find that paying interest on reserves (IOR) is optimal if the central bank has full fiscal support. If the central bank has no fiscal support, reducing reserves is optimal. This can be achieved by reserve-absorbing operations which hold the size of the balance sheet constant, or by selling assets which reduces the size of the balance sheet.
Subjects: 
Exit strategies
money market
repo
monetary policy
interest rates
JEL: 
E40
E50
D83
Document Type: 
Working Paper

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