We construct a model to analyse the two types of tender procedures used by the European Central Bank in its open market operations. We assume that the ECB minimizes the expected value of a loss function that depends on the quadratic difference between the interbank rate and a target interest...

The 2007-9 .financial crisis began with increased uncertainty over funding conditions in money markets. We show that funding uncertainty can explain diverse elements of commercial banks behaviour during the crisis, including:(i) reductions in lending volumes, balance sheets, and...

This paper presents a simple model of risk-averse banks that face uncertainty over funding conditions in the money market. It shows that increased funding uncertainty: (i) creates risk-based loan-deposit synergies, (ii) often causes banks' lending volumes and their profitability to decline,...

After almost six years with official interest rates at close to zero and with numerous unconventional measures still in place, 2014 is witnessing the beginning of the process of monetary normalisation in those economies, such as the United States and the United Kingdom, in which the recovery...

One of the most striking macroeconomic phenomena in recent decades has been the achievement of rather low and more stable rates inflation in many countries in the nineties. Consequently, the main goal of this paper is to offer an overview of the main policy issues arising in a low inflation...

The fiscal theory of the price level has challenged the conventional view that monetary factors drive prices and exchange rates and has also provided a rationale for fiscal restrictions in a monetary union. This paper reviews the main results and compelling criticisms of this theory, analyzing...

We explore how the ECB sets interest rates in the context of policy reaction functions. Using both real-time and revised information, we consider linear and nonlinear policy functions in inflation, output and a measure of financial conditions. We find that amongst Taylor rule models, linear and...

The aim of this paper is twofold. First, I study how the proportion of fixed and variable-rate mortgages in an economy can affect the way shocks are propagated. Second, I analyze optimal implementable simple monetary policy rules and the welfare implications of this proportion. I develop and...

In this paper we provide an in-sample assessment of how the South African Reserve Bank (SARB) sets policy rate in the context of both linear and nonlinear Taylor type rule models of monetary policy. Given the controversial debate on whether central banks should target asset prices for economic...

We analyze optimal monetary policy in a model with two distinct financial frictions. First, borrowing is subject to collateral constraints. Second, credit flows are intermediated by monopolistically competitive banks, thus giving rise to endogenous lending spreads. We show that, up to a second...