Peru central bank paper models interbank lending

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A working paper, published by the Central Bank of Peru in June, adds an interbank market to a New Keynesian model of the economy to examine the interaction of reserve requirements and interest rate changes.

Authors César Carrera and Hugo Vega argue that adding an interbank market makes for a more effective model of monetary policy. The paper finds that an increase of reserve requirements by the central bank has a similar impact to raising the interest rate. "This is particularly relevant when

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