Abstract:
In a world of endogenous money, the central bank’s role in monetary policy is reduced to the setting of a very short-term official rate of interest, which indicates the price at which it will make liquidity available to the banking system. However; it is changes in market rates that affect behavior; and so the ability of the central bank to influence anything at all depends, first, on the interaction between official and market rates. In this paper; we use a vector autogressive error correction model to explore the response to changes in the central bank rate of three short-term market rates that have beenfeatured previously in this journal in debates about the demand for endogenous money.
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