Monetary policy implementation in a negative rate environment: FB3-5/2017-25E-PDF
"Monetary policy implementation could, in theory, be constrained by deeply negative rates since overnight market participants may have an incentive to invest in cash rather than lend to other participants. To understand the functioning of overnight markets in such an environment, we add the option to exchange central bank reserves for cash to be standard workhorse model of monetary policy implementation (Poole 1968). Importantly, we show that monetary policy is not constrained when just the deposit rate is below the yield on cash. However, it could be constrained when just the deposit rate is below the yield on cash. At this point, the overnight rate equals the yield on cash instead of the target rate. Modifications to the implementation framework, such as a tiered remuneration of central bank deposits contingent on cash withdrawals, can work to restore the implementation of monetary policy such that the overnight rate equals the target rate."--Abstract, p. ii.
|Department/Agency||Bank of Canada.|
|Title||Monetary policy implementation in a negative rate environment|
|Series Title||Bank of Canada staff working paper,|
|Publication Type||Series - View Master Record|
|Electronic Document|| |
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact the authoring department to request a format other than those available.
We invite you to consult the Frequently Asked Questions page for additional information regarding the Archived Content notice.
Note: The URLs contained in this/these document(s) may no longer be functional
|Number of Pages||ii, 41 p. :|
|Subject Terms||Monetary policy, Interest rates|
- Date modified: