Monetary Policy Implementation: A Microstructure Approach

  • Perry Mehrling
  • Neil T. Skaggs


In classic central banking theory, the ‘discount house’ played a central role (Bagehot, 1873, Sayers, 1976).1 As holders of short-term commercial bills, the discount houses financed the holding of goods on their way from producers to consumers, and, in turn, financed themselves primarily by borrowing from banks. Just so, an expansion of trade went hand in hand with an expansion of both the assets and liabilities of the discount houses, and also an expansion of both the assets and liabilities of the banking system. Looking through the balance sheet relationships, it was clear to observers that the expansion of trade was financed by an expansion of bank money, meaning the deposit liabilities of the banking system.


Monetary Policy Central Bank Balance Sheet Federal Reserve Money Market 
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© Perry Mehrling and Neil T. Skaggs 2010

Authors and Affiliations

  • Perry Mehrling
  • Neil T. Skaggs

There are no affiliations available

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