Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172770
Authors: 
Bratsiotis, George
Year of Publication: 
2017
Abstract: 
This paper examines the role of the precautionary demand for liquidity and the interest on reserves as two potential determinants of the deposits channel that can help explain the role of monetary policy, particularly at the near zero-bound. At high levels of precautionary liquidity hoarding the optimal policy response of a Taylor rule is shown to indicate a zero weight on inflation. This is a determinate outcome, despite the violation of the Taylor Principle, because of the effect that the demand for liquidity has on the deposit rate which determines the intertemporal choices of households. Similarly, through its effect on the deposits channel the interest on reserves can act as the main monetary policy tool that can provide determinacy and replace the Taylor rule. This result holds at the zero-bound and it is independent of precautionary demand for liquidity, or fiscal theory of the price level properties.
Subjects: 
Deposits channel
zero-bound monetary policy
excess reserves
credit risk
welfare
required reserve ratio
interest on reserves
balance sheet channel
DSGE models
Document Type: 
Preprint

Files in This Item:
File
Size
557.18 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.