Banking and interest rates in monetary policy analysis
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Banking and interest rates in monetary policy analysis a quantitative exploration by Marvin Goodfriend

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Published by National Bureau of Economic Research in Cambridge, Mass .
Written in English


  • Monetary policy -- Econometric models,
  • Banks and banking,
  • Interest rates

Book details:

About the Edition

The paper reconsiders the role of money and banking in monetary policy analysis by including a banking sector and money in an optimizing model otherwise of a standard type. The model is implemented quantitatively, with a calibration based on U.S. data. It is reasonably successful in providing an endogenous explanation for substantial steady-state differentials between the interbank policy rate and (i) the collateralized loan rate, (ii) the uncollateralized loan rate, (iii) the T-bill rate, (iv) the net marginal product of capital, and (v) a pure intertemporal rate. We find a differential of over 3 % pa between (iii) and (iv), thereby contributing to resolution of the equity premium puzzle. Dynamic impulse response functions imply pro-or-counter-cyclical movements in an external finance premium that can be of quantitative significance. In addition, they suggest that a central bank that fails to recognize the distinction between interbank and other short rates could miss its appropriate settings by as much as 4% pa. Also, shocks to banking productivity or collateral effectiveness call for large responses in the policy rate.

Edition Notes

StatementMarvin Goodfriend, Bennett T. McCallum.
SeriesNBER working paper series -- no. 13207., Working paper series (National Bureau of Economic Research) -- working paper no. 13207.
ContributionsMcCallum, Bennett T., National Bureau of Economic Research.
The Physical Object
Pagination43 p. :
Number of Pages43
ID Numbers
Open LibraryOL17634376M

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Journal of Monetary Economics Vol Issue 5, July , Pages Banking and interest rates in monetary policy analysis: A quantitative exploration ☆Cited by: In this book you will find not only a unified treatment of the theoretical foundations of monetary policy, optimal policy inertia, indicator variables for optimal policy, monetary policy in a world without money, fiscal requirements for price stability, optimal rules for setting interest rates, and much more, but also practical details of. Marvin Goodfriend & Bennett T. McCallum, "Banking and Interest Rates in Monetary Policy Analysis: A Quantitative Exploration," NBER Working Papers . Divided into two parts, this book presents a detailed, multi-faceted analysis of banking and monetary policy. The first part examines the role of central banks within an endogenous money framework. These chapters address post-Keynesian interest rate policy, monetary mercantilism, financial market organization and developing economies.

This paper studies the e˛ect of low interest rates on ˙nancial intermediation and the transmission of monetary policy. Using U.S. bank- and branch-level data, I document two new facts: ˙rst, the long-run decline in bond rates has not been fully passed through to loan rates; second, the short-run pass-through of policy rates to loan rates is. Figure 1. Monetary Policy and Interest Rates. The original equilibrium occurs at E expansionary monetary policy will shift the supply of loanable funds to the right from the original supply curve (S 0) to the new supply curve (S 1) and to a new equilibrium of E 1, reducing the interest rate from 8% to 6%.A contractionary monetary policy will shift the supply of loanable funds to the left. The finding revealed that almost all the variables, with the exception of bank savings rate, exhibit a strong sign of co-moving in the long run with the tendency of converging. The research revealed that there exist unidirectional causality between monetary policy rate and bank lending rate; bank lending rate and bank savings rate. With the goals and frameworks for macroeconomic analysis in mind, the final step is to discuss the two main categories of macroeconomic policy: monetary policy, which focuses on money, banking and interest rates; and fiscal policy, which focuses on government spending, taxes, and borrowing.

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