Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86960
Authors: 
Reynard, Samuel
Schabert, Andreas
Year of Publication: 
2009
Series/Report no.: 
Tinbergen Institute Discussion Paper 09-094/2
Abstract: 
We develop a macroeconomic framework where money issupplied against only few eligible securities in open marketoperations. The relationship between the policy rate,expected inflation and consumption growth is affected bymoney market conditions, i.e. the varying liquidity value ofeligible assets and the associated risk. This induces a liquiditypremium, which explains the observed systematic wedgebetween the policy rate and consumption Euler interest ratethat standard models equate. It further implies a dampenedresponse of consumption to policy rate shocks that is humpshapedwhen we account for realistic central bank transfersand the dynamics of bond holdings.
Subjects: 
Monetary policy
Open market operations
Liquidity
JEL: 
E52
E58
E43
E32
Document Type: 
Working Paper

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