Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60921
Authors: 
Martin, Antoine
Monnet, Cyril
Year of Publication: 
2008
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 313
Abstract: 
We compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, and the second one relies only on open market operations. We show that the Friedman rule cannot be implemented in the first framework, but can be implemented using the second framework. However, for a given rate of inflation, we show that the first framework unambiguously achieves higher welfare than the second one. We conclude that an optimal system of monetary policy implementation should contain elements of both frameworks. Our results also suggest that any such system should pay interest on both required and excess reserves.
Subjects: 
Monetary policy implementation
standing facilities
open market operations
JEL: 
E52
E58
E59
Document Type: 
Working Paper

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