A search-based model of the interbank money market and monetary policy implementation

We present a search-based model of the interbank money market and monetary policy implementation. Banks are subject to reserve requirements and the central bank tenders reserves. Interbank payments redistribute holdings and banks trade with each other in a decentralized (over-the-counter) market. Th...

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Bibliographic Details
Published inJournal of economic theory Vol. 164; pp. 32 - 67
Main Authors Bech, Morten, Monnet, Cyril
Format Journal Article
LanguageEnglish
Published New York Elsevier Inc 01.07.2016
Elsevier Science Publishing Company, Inc
Subjects
Central banks
Economic theory
Interbank market
Market structure
Monetary policy
Monetary policy implementation
Money markets
Reserve requirements
Studies
Unconventional monetary policy
Europe
E5
Monetary policy implementation
Interbank market
Unconventional monetary policy
G21
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Summary:We present a search-based model of the interbank money market and monetary policy implementation. Banks are subject to reserve requirements and the central bank tenders reserves. Interbank payments redistribute holdings and banks trade with each other in a decentralized (over-the-counter) market. The central bank provides standing facilities where banks can either deposit surpluses or borrow to cover shortfalls of reserves overnight. The model provides insights on liquidity, trading volume, and rate dispersion in the interbank market – features largely absent from the canonical models in the tradition of Poole (1968) – and fits a number of stylized facts for the Eurosystem observed during the recent period of unconventional monetary policies. Moreover, it provides insights on the implications of different market structures.
Bibliography:SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 14
ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2015.08.007