Distribution of liquidity can impact monetary policy transmission, paper finds
Research encourages central banks to pay attention to distribution as well as overall level of liquidity
The transmission of monetary policy "may be enhanced" by paying greater attention to the distribution of liquidity in the interbank market, according to a working paper published by Norges Bank on February 2.
In Pricing in the Norwegian interbank market – the effects of liquidity and implicit government support, Q. Farooq Akram and Casper Christophersen study Norwegian overnight interbank rates between 2006 and 2009.
The authors find an increase in overall liquidity in the interbank market
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