Monetary policy operations : theory, evidence, and tools for quantitative analysis

Author / Creator

Lagos Escobar, Ricardo

Available as

Online

Summary

We formulate a quantitative dynamic equilibrium theory of trade in the fed funds market, calibrate it to fit a comprehensive set of marketwide and micro-level cross-sectional observations, and use ...

We formulate a quantitative dynamic equilibrium theory of trade in the fed funds market, calibrate it to fit a comprehensive set of marketwide and micro-level cross-sectional observations, and use it to make two contributions to the operational side of monetary policy implementation. First, we produce global structural estimates of the aggregate demand for reserves--a crucial decision-making input for modern central banks. Second, we propose diagnostic tools to gauge the central bank's ability to track a given fed funds target, and the heterogeneous incidence of policy actions on the shadow cost of funding across banks.

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