Berentsen, Aleksander Marchesiani, Alessandro Waller, Christopher Jude
Year of Publication:
CESifo working paper: Monetary Policy and International Finance 3251
An increasing number of central banks implement monetary policy via two standing facilities: a lending facility and a deposit facility. In this paper we show that it is socially optimal to implement a non-zero interest rate spread. We prove this result in a dynamic general equilibrium model where market participants have heterogeneous liquidity needs and where the central bank requires government bonds as collateral. We also calibrate the model and discuss the behavior of the money market rate and the volumes traded at the ECB's deposit and lending facilities in response to the recent financial crisis.
monetary policy open market operations standing facilities