This paper proposes rules for the control of interbank rate volatility under different interest corridor systems when volatility stems from interbank market frictions. Friction-induced volatility will occur if there is heterogeneity in two dimensions (across banks and time) with respect to the...

This paper introduces a theoretical model of an interbank market and a central bank that implements an interest corridor system in order to exert control over the overnight interbank rate. We analyze in how far interbank market frictions in the form of broadly defined transaction costs influence...

This paper proposes rules for the control of interbank rate volatility under different interest corridor systems when volatility stems from interbank market frictions. Friction-induced volatility will occur if there is heterogeneity in two dimensions (across banks and time) with respect to the...