Banking and interest rates in monetary policy analysis
Subtitle: a quantitative exploration
By: Marvin Goodfriend, Bennett T. McCallum
Contributors: McCallum, Bennett T.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 13207; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13207.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/31/2007.

Includes bibliographical references.

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