The role of interbank markets in monetary policy: A model with rationing

• Type: Article in International Scientific Journal
• Date: 2008

Authors

Xavier Freixas (Author) Other; José Jorge (Author) FEP

Journal

Title: Journal of Money, Credit and Banking

Vol. 40 No. 6

Pages: 1151-1176

ISSN: 0022-2879

Publisher: Wiley-Blackwell

Indexing

ISI Web of Knowledge - 65 Citations

Scopus - 66 Citations

Econlit

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences

Other information

Authenticus ID: P-003-WMB

DOI: 10.1111/j.1538-4616.2008.00152.x

Abstract (EN): 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).

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 26