Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77484
Authors: 
Berentsen, Aleksander
Marchesiani, Alessandro
Waller, Christopher J.
Year of Publication: 
2013
Series/Report no.: 
Working Paper Series, Department of Economics, University of Zurich 121
Abstract: 
An increasing number of central banks implement monetary policy via a channel system or a floor system. We construct a general equilibrium model to study the properties of these systems. We find that the optimal framework is a floor system if and only if the target rate satisfies the Friedman rule. Unfortunately, the optimal floor system requires either transfers from the fiscal authority to the central bank or a reduction in seigniorage payments from the central bank to the government. This is the unpleasant fiscal arithmetic of a floor system. When the central bank faces financing constraints on its interest expense, we show that it is optimal to operate a channel system.
Subjects: 
monetary policy
floor system
channel system
standing facilities
JEL: 
E52
E58
E59
Document Type: 
Working Paper

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