This paper shows that depending on the distribution of banks' uncertain liquidity needs and on how monetary policy is implemented, frictions in the interbank market may reinforce the effectiveness of monetary policy. The frictions imply that with its lending and deposit facilities the central...

In this note we elaborate on the effect of the modeling choice of the zero lower bound on the size of the fiscal multiplier. To this end we contrast two different ways to implement the ZLB in a New Keynesian model: the ZLB modeled as an endogenous central bank reaction to a contractionary demand...

This paper shows that depending on the distribution of banks' uncertain liquidity needs and on how monetary policy is implemented, frictions in the interbank market may reinforce the effectiveness of monetary policy. These frictions imply that with its lending and deposit facilities the central...

In this paper we investigate the risk-related effects of monetary policy both in normal times, as well as in periods where the zero lower bound (ZLB) binds, in a stylized macroeconomic model with boundedly rational beliefs. In our model, financial market participants use heuristics to assess the...