Objective
This proposal explores the optimal design of central bank liquidity policies in a modern financial system characterized by new risks and economic constraints. It is structured around three connected projects, each addressing an aspect of liquidity provision: the remuneration of central bank reserves, the design of lender-of-last-resort policies and the stimulative effect of liquidity injections.
Project 1 investigates how central banks should supply and remunerate reserves. The project considers how key frictions—market power, liquidity risks, and balance sheet constraints—affect banks’ ability to transform reserves into deposits. It proposes a model of the deposit market and embeds it into a general equilibrium setup for optimal policy analysis and considers the trade-off with inflation control and fiscal costs. The project will use structural time-series analysis to explain the drivers of rates in the deposit market to obtain moments for calibration.
Project 2 examines how lender-of-last-resort policies should adapt to liquidity risks arising from financial hedging. Unlike speculative behaviour, hedging creates liquidity needs for institutions whose solvency has improved. The project will measure these liquidity needs using rich microdata from the FX market and show a connection to lender-of-last-resort borrowing. In theory, it will show policy design must differentiate between hedgers and speculators, balancing generous liquidity support for the former with measures to mitigate moral hazard for the latter.
Project 3 explores the stimulative effect of liquidity injections using unique data on payments. It focuses on estimating banks’ marginal propensity to lend (MPL) from liquidity flows, identifying how these vary across banks, and tracing the amplifying effects of payment networks. This project revisits the concept of the money multiplier and aims to show how targeting high-MPL institutions can maximize the stimulative impact of central bank policies
Fields of science (EuroSciVoc)
CORDIS classifies projects with EuroSciVoc, a multilingual taxonomy of fields of science, through a semi-automatic process based on NLP techniques. See: The European Science Vocabulary.
CORDIS classifies projects with EuroSciVoc, a multilingual taxonomy of fields of science, through a semi-automatic process based on NLP techniques. See: The European Science Vocabulary.
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Keywords
Project’s keywords as indicated by the project coordinator. Not to be confused with the EuroSciVoc taxonomy (Fields of science)
Project’s keywords as indicated by the project coordinator. Not to be confused with the EuroSciVoc taxonomy (Fields of science)
Programme(s)
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
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HORIZON.1.1 - European Research Council (ERC)
MAIN PROGRAMME
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Topic(s)
Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.
Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.
Funding Scheme
Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
HORIZON-ERC - HORIZON ERC Grants
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Call for proposal
Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
(opens in new window) ERC-2025-COG
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Net EU financial contribution. The sum of money that the participant receives, deducted by the EU contribution to its linked third party. It considers the distribution of the EU financial contribution between direct beneficiaries of the project and other types of participants, like third-party participants.
WC1E 6BT LONDON
United Kingdom
The total costs incurred by this organisation to participate in the project, including direct and indirect costs. This amount is a subset of the overall project budget.