Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130637
Authors: 
Keister, Todd
Martin, Antoine
McAndrews, James
Year of Publication: 
2015
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 754
Abstract: 
In a floor system of monetary policy implementation, the central bank remunerates bank reserves at or near the market rate of interest. Some observers have expressed concern that operating such a system will have adverse fiscal consequences for the public sector and may even require the government to subsidize the central bank. We show that this is not the case. Using the monetary general equilibrium model of Berentsen et al. (2014), we show how a central bank that supplies reserves through open market operations can always generate non-negative net income, even when using a floor system to implement the Friedman rule.
Subjects: 
monetary policy implementation
central bank operations
interest on reserves
JEL: 
E42
E52
E58
Document Type: 
Working Paper

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