Abstract
This paper demonstrates that in the post-2008 environment with interest on reserves, monetary policy actions can generate regime shifts that yield quantitatively and even qualitatively different responses of bank balance-sheet configurations and loan and deposit market outcomes to exogenous changes. In contrast to the view that a one-time structural change occurred in 2008, switching between several different regimes plausibly can arise depending upon settings of the reserve ratio, federal funds rate, and the interest rate on reserves. Our results explain stylized facts regarding excess reserves and interbank lending. Analysis with calibrated values indicates that such regime switching has occurred.
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