Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy

Released on by Eric Monnet
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  • Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy Book Detail

  • Author : Eric Monnet
  • Release Date : 2019-08-16
  • Publisher : International Monetary Fund
  • Genre : Business & Economics
  • Pages : 48
  • ISBN 13 : 1513511513
  • File Size : 92,92 MB
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Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy by Eric Monnet PDF Summary

Book Description: This paper explores what history can tell us about the interactions between macroprudential and monetary policy. Based on numerous historical documents, we show that liquidity ratios similar to the Liquidity Coverage Ratio (LCR) were commonly used as monetary policy tools by central banks between the 1930s and 1980s. We build a model that rationalizes the mechanisms described by contemporary central bankers, in which an increase in the liquidity ratio has contractionary effects, because it reduces the quantity of assets banks can pledge as collateral. This effect, akin to quantity rationing, is more pronounced when excess reserves are scarce.

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