Channel Systems: Why is There a Positive Spread?

Aleksander Berentsen, Alessandro Marchesiani, Christopher J. Waller
2010 Social Science Research Network  
An increasing number of central banks implement monetary policy via a channel system or a ‡oor system. We construct a general equilibrium model to study the properties of these systems. We ...nd that a ‡oor system is weakly optimal if and only if the target rate the Friedman rule. Unfortunately, the optimal ‡oor system requires either transfers from the ...scal authority to the central bank or a reduction in seigniorage payments from the central bank to the government. This is the
more » ... leasant ...scal arithmetic of a ‡oor system. When the central bank faces ...nancing constraints on its interest expense, we show that it is strictly optimal to operate a channel system. JEL Codes: E52, E58, E59
doi:10.2139/ssrn.1709303 fatcat:h5yhk2uasnejlagv6evwi5lj3e