Freixas, Xavier; Martin, Antoine; Skeie, David - Federal Reserve Bank of New York - 2009
and the optimal policy of a central bank in response to both idiosyncratic and aggregate shocks. In particular, we … consider how the interbank market affects a bank's choice between holding liquid assets ex ante and acquiring such assets in … the market ex post. We show that a central bank should use different tools to manage different types of shocks …