Monetary Policy with a Touch of Basel

48 Pages Posted: 31 Jan 2006

See all articles by Ralph Chami

Ralph Chami

International Monetary Fund (IMF)

Thomas F. Cosimano

University of Notre Dame; International Monetary Fund

Multiple version iconThere are 2 versions of this paper

Date Written: October 2001

Abstract

The typical portrait of monetary policy has the banks and the money supply being manipulated through changes in bank reserves. However, with only a small portion of bank deposits now subject to reserve requirements, an alternative explanation of how monetary policy influences banks is needed. Over the last decade, capital requirements have effectively replaced reserve requirements as the main constraint on the behavior of banks. This paper explores the implications of Basel capital requirements for monetary policy. In particular, we identify a bank balance-sheet channel of monetary policy, which operates through the impact on the money stock and the economy.

Keywords: capital requirements, monetary policy

JEL Classification: E5, G2

Suggested Citation

Chami, Ralph and Cosimano, Thomas F., Monetary Policy with a Touch of Basel (October 2001). IMF Working Paper No. 01/151, Available at SSRN: https://ssrn.com/abstract=879965

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