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This paper presents a small open economy model to analyze the role of central bank liquidity management in implementing “unconventional” monetary policies within an inflation targeting framework. In particular, the paper explicitly models the facilities that the central bank uses to manage liquidity in the economy, which creates a role for the central bank balance sheet in equilibrium. This permits the analysis of two “unconventional” policies: sterilized exchange-rate interventions and expanding the list of eligible collaterals accepted at the liquidity facilities operated by the central bank. These policies have been recently implemented by several central banks: the former as a way to counteract persistent appreciations in the domestic currency, and the latter as a response to the recent global financial crisis in 2008. As a case study, the paper provides a detailed account of the Chilean experience with these alternative tools, as well as a quantitative evaluation of the effects of some of these policies.
This paper provides an overview of the reserve requirement measures undertaken by the Central Bank of Peru. It provides a rationale for the use of these instruments as well as empirical evidence of their effectiveness. In general, the results show that tightening reserve requirements has the desired effects on interest rates and credit levels at both banks and smaller financial institutions (cajas ... (View publication)
Quantitative analysis of a New Keynesian model with the Bernanke-Gertler accelerator and risk shocks shows that violations of Tinbergen’s Rule and strategic interaction between policymaking authorities undermine significantly the effectiveness of monetary and financial policies. Separate monetary and financial policy rules, with the latter subsidizing lenders to encourage lending when credit spr ... (View publication)
Monetary normalization may be a chronicle foretold, but countries still have the power to influence the outcome for their own economies. This report focuses on the risks Latin American and Caribbean countries face and how they can reduce vulnerabilities and enhance opportunities. (View publication)
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