We develop a model of monetary policy with a small departure from the basic New Keynesian (NK) model. In this model, the central bank can set the interest rate on bank reserves and the nominal stock of bank reserves independently, because these reserves reduce the costs of banking (i.e., have a...

This paper designs, for a broad class of rational-expectations dynamic stochastic general-equilibrium models, interest-rate rules which not only ensure the local determinacy of the targeted equilibrium within the neighbourhood of the targeted steady state, but also prevent the economy from...

We develop a model of monetary policy with a simple departure from the basic New Keynesian (NK) model. In this model, the central bank sets independently the interest rate on bank reserves and the nominal stock of bank reserves. Because reserves reduce the costs of banking, the model delivers...