Abstract
We develop a model of monetary policy implementation in which banks bid for liquidity provided by the central bank in fixed rate auctions, considering liquidity injections and extractions as well as the impact of a subsequent interbank market. We derive the equilibrium demands of banks. We also investigate the impact the central bank auction has on the subsequent interbank market and find that while lending in the interbank market is reduced, the interest rates are moving in the desired direction. In the context of the interbank network the impact of monetary policy on banks depends on their network locations, which may give rise to the prospects of distributional effects of monetary policy.
| Original language | English |
|---|---|
| Number of pages | 48 |
| Journal | Journal of Economic Interaction and Coordination |
| Early online date | 10 Oct 2021 |
| DOIs | |
| Publication status | Published - 31 Dec 2021 |
Bibliographical note
Funding Information:This work was supported by Humanities and Social Sciences Foundation of the Ministry of Education of China No. 20YJCZH184.
Publisher Copyright:
© 2021, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.
Keywords
- Bid shading
- Central bank operation
- Core–periphery network
- Fixed rate auction
- Interbank network
- Multi-unit auction
- Variable rate auction
ASJC Scopus subject areas
- Business and International Management
- Economics and Econometrics
Access to Document
- manuscript_revised_final.PDF
This is a post-peer-review, pre-copyedit version of an article published in Journal of Economic Interaction and Coordination.. The final authenticated version is available online at :https://link.springer.com/article/10.1007/s11403-021-00336-3