Liquidity And Announcement Effects In The Euro Area
AbstractUsing daily data for the euro area, the paper estimates demand equations for reserves held by commercial banks at the central bank. The presence of the expected overnightrate among the regressors allows to gauge the announcement effect, the ability by thecentral bank to influence the current overnight rate without resorting to open marketoperations, e.g. via the announcement of an official interest rate change, or a speech byone of its top executives. The estimated semi-elasticities to the current and expected ratehave opposite signs and are very similar in absolute value. This implies that central bankstatements affecting the expected overnight rate trigger an arbitrage mechanism wherebythe current rate moves in the same direction and by the same amount, leaving themarket for liquidity in equilibrium without any need for the central bank to resort toliquidity management. The equations are also used to gauge the liquidity effect, the reactionof short-term interest rates to a monetary base shock.
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Bibliographic InfoArticle provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.
Volume (Year): 67 (2008)
Issue (Month): 1 (March)
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Other versions of this item:
- Paolo Angelini, 2002. "Liquidity and Announcement Effects in the Euro Area," Temi di discussione (Economic working papers) 451, Bank of Italy, Economic Research and International Relations Area.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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