A Search-Based Model of the Interbank Money Market and Monetary Policy Implementation

44 Pages Posted: 24 Nov 2015

See all articles by Morten L. Bech

Morten L. Bech

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures

Cyril Monnet

Federal Reserve Bank of Philadelphia

Date Written: November 2015

Abstract

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.

Keywords: Interbank market, monetary policy implementation, unconventional monetary policy

JEL Classification: G21, E5

Suggested Citation

Bech, Morten L. and Monnet, Cyril, A Search-Based Model of the Interbank Money Market and Monetary Policy Implementation (November 2015). BIS Working Paper No. 529, Available at SSRN: https://ssrn.com/abstract=2695013

Morten L. Bech (Contact Author)

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
41612808923 (Phone)

Cyril Monnet

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
413
PlumX Metrics