Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/173232 
Title: 

Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel

The document was removed on behalf of the author(s)/ the editor(s).

Year of Publication: 
2018
Series/Report no.: 
Discussion Paper Series, Centre for Growth and Business Cycle Research, University of Manchester No. 236
Publisher: 
University of Manchester, Centre for Growth and Business Cycle Research, Manchester
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 result is explained by 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 tool of monetary policy, that is shown to provide higher welfare gains in relation to a simple Taylor rule. This result is shown to hold at the zero-bound and it is independent of the precautionary demand for liquidity, or fiscal theory of the price level properties.
Subjects: 
Deposits channel
zero-bound monetary policy
excess reserves
credit risk
balance sheet channel
interest on reserves
required reserve ratio
welfare
DSGE models
JEL: 
E31
E32
E44
E52
E50
G28
Document Type: 
Working Paper

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The document was removed on behalf of the author(s)/ the editor(s) on: September 17, 2018


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