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Mitusch, Kay
Nautz, Dieter
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Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1998,30
The most important policy instruments of the Bundesbank and of the coming European Central Bank involve lending to domestic credit institutions. In this monetary setup, banks use short-term central bank credits extensively in order to refinance long-term loans to the public, which makes them vulnerable to sudden monetary policy changes. We develop a loan supply model that captures distinguishing features of the European money supply process and show how money supply responds when future monetary policy is expected to become tighter or more uncertain. The results indicate that the controllability of borrowed reserves is of crucial importance for monetary policy practice.
Loan and money supply
central bank lending
monetary policy instruments of the ECB
interest rate risk
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Working Paper

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