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...

We show that large excess reserves affect monetary policy transmission. Specifically, the net worth of reserve-rich banks may increase when the interest rate paid on excess reserves increases strongly. Focusing on the European Central Bank's 2022 rate hiking cycle, we show that banks with larger...

We analyse nominal exchange rate and price dynamics after risk premium shocks with short-term interest rates constrained by the zero lower bound (ZLB). In a small-open-economy DSGE model, temporary risk premium shocks lead to shifts of the exchange rate and the price level if a central bank...

Empirical research on the monetary transmission mechanism considering credit developments is almost exclusively limited to the amount of outstanding credit in an economy. Two issues arise out of this. First, stock-flow inconsistencies might occur. Second, the change of the outstanding amount of...