We develop a new tractable model of banks' liquidity management and the credit channel of monetary policy. Banks finance loans by issuing demand deposits. Because loans are illiquid, deposit transfers across banks must be settled with reserves. Deposit withdrawals are random, and banks manage...

Based on moral hazard, this paper introduces corporate cash holding into the dynamic stochastic general equilibrium (DSGE) model to explain the insufficient investment and monetary policy ineffectiveness, and further discuss the optimal countercyclical policy. Different from external financing...