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Government Bonds, Bank Liquidity and Non-Neutrality of Monetary Policy in the Steady

Wang, Tianxi (2021) Government Bonds, Bank Liquidity and Non-Neutrality of Monetary Policy in the Steady. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester. (Unpublished)

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Abstract

This paper studies non-neutrality of monetary policy in a model where fiat money is used by banks to meet liquidity demand and a government bond to collateralize reserve borrowing. It finds that if some banks are liquidity constrained, any monetary policy that alters the bond-to-fiat money ratio moves the interbank rate and is non-neutral in the steady state. Moreover, the effect for liquidity un-constrained banks is the opposite of that for the maximally constrained. Lastly, if the expansion of digital ways of payment eliminates depositor withdrawals, fiat money will stop circulation and a bullion standard will probably return.

Item Type: Monograph (Working Paper)
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 12 Jan 2021 10:31
Last Modified: 12 Jan 2021 10:31
URI: http://repository.essex.ac.uk/id/eprint/29502

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