Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228892
Authors: 
Canetg, Fabio
Year of Publication: 
2020
Series/Report no.: 
Discussion Papers No. 20-04
Abstract: 
I provide a simple general equilibrium model of monetary policy implementation and pass-through for undergraduate and graduate teaching. Besides a household and a firm, the model features a continuum of commercial banks, a government, and a central bank. The household uses deposits and cash to transfer resources over time. Monetary policy is implemented with open market operations and interest on reserves policies. I show that open market operations affect the money market rate, the government bond yield, and the deposit rate through changes in the insurance yield on reserves. At the interest rate floor, the insurance yield is zero. Therefore, open market operations become ineffective when reserves are ample. By contrast, interest on reserves policies change interest rates even at the interest rate floor. In addition, I find that expansionary monetary policies decrease expected commercial bank profits. Also, they increase household cash holdings in a monotonic, but non-linear fashion.
Subjects: 
Monetary policy implementation
monetary policy pass-through
open market operations
interest on reserves
negative interest rate policies
JEL: 
E41
E43
E52
E58
Document Type: 
Working Paper

Files in This Item:
File
Size
536.66 kB





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