Research On The Monetary Policy Of The Central Bank Under Commercial Bank Liquidity Crises

Liquidity takes an important position in commercial banks management. Bankswill hold a certain amount of liquidity assets in normal time in case of possibleliquidity shocks. When banks suffer liquidity shocks, deficit banks can get liquidityfrom surplus banks by the channel of interbank market, so there is an interbankmarket interest rate in the interbank. When the interest is suitable, the market can easeliquidity shocks, or the crisis will be more serious. Then we need the intervention bythe central bank.We develop a model of the interbank market and show that the central bank’sinterest rate policy can directly improve liquidity condition in the interbank market.The optimal policy in the model consists of reducing the rate during the shocks, whichis consistent with central bank in practice. We can gain the results by knowing the roleof interbank market. The main role of interbank market is to redistribute the liquidreserves in the banking system. In our model, banks may face liquidity shocks, whichwe define as uncertainty regarding the need for liquid assets, which we associate withreserves.Finally, we think that the central bank can play an important and effective role insolving liquidity shocks by the analysis of the model. And the central bank can takedifferent intervening policy when facing different shocks.