Journal Articles
The role of Interbank Markets in Monetary Policy: A model with rationing
Authors
Freixas, Xavier; Jorge, J.
UPF authors
Type
Scholarly articles
Journal title
Journal of Money, Credit and Banking
Publication year
2008
Volume
40
Number
6
Pages
1151-1176
ISSN
0022-2879
Publication State
Published
Abstract
This paper analyzes the impact of asymmetric information in the interbank market and establishes its crucial role in the microfoundations of the monetary policy transmission mechanism. We show that interbank market imperfections induce an equilibrium with rationing in the credit market. This has two major implications: first, it reconciles the irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy (magnitude effect), and second, it shows that banks' liquidity positions condition their reaction to monetary policy (Kashyap and Stein liquidity effect).
Complete citation
Freixas, Xavier; Jorge, J.. The role of Interbank Markets in Monetary Policy: A model with rationing. Journal of Money, Credit and Banking 2008; 40(6): 1151-1176.
