A formal look at the negative interbank rate

Gerasimos Soldatos
2017 Theoretical and Applied Economics   unpublished
This paper develops a simple theoretical model regarding the policy means of negative interbank rate against recession. It is found out that the adoption of such a rate does not differ much from a scheme of full-reserve banking. That is, this paper adds the negative interbank rate to those means aiming at zero bank profit to the extent that such is also the aim of the 100% reserve rule. And, to the extent that recession forms an equilibrium phenomenon, this policymaking is necessarily
more » ... ing towards some full-employment state of affairs, but the transition is not found to be smooth depending on how the elasticities of loan demand and deposit supply react. Keywords: Negative interbank rate, Full-reserve banking, Elasticities of loan demand and deposit supply. JEL Classification: E31, E43, E44.