September 2022 issue contents
Confidence Cycles and Liquidity Hoarding

Volha Audzei
Czech National Bank


Market confidence has proved to be an important factor during past economic crises. In this paper, I incorporate a model of the interbank market into a DSGE model, with the volume of lending depending on market confidence. I conduct an exercise to mimic some central bank policies: provision of liquidity and reduction of the reserve rate. My results indicate that policy actions have a limited effect on the supply of credit if they fail to influence agents' expectations. A low reserve rate policy worsens recessions due to its negative impacts on bank revenues.

JEL Code: E58, E65, E71, G01.

Full article (PDF, 40 pages)

Online appendix (PDF, 22 pages)