In response to the financial crisis of 2007/08, all major central banks decreased interest rates to historically low levels and created large excess reserves. Central bankers and academics currently discuss how to implement monetary policy, going forward. We find that paying interest on reserves...

We extend the analysis of the interbank market model of Gale and Yorulmazer (2013) by studying a larger set of trading mechanisms. A trading mechanism, which allows for randomized trading, restores efficiency. In contrast to Gale and Yorulmazer, we find that fire-sale asset prices are efficient...