Monetary policy in the United States and the euro area during the crisis
AbstractIn the wake of the two longer-term refinancing operations with a maturity of three years conducted in December 2011 and February 2012, amounts placed on the Eurosystem’s deposit facility surged to unprecedented high levels of around € 800 billion. The article clarifies how this high recourse to the deposit facility should be interpreted. First, daily changes in the amounts being placed on the deposit facility should not necessarily be interpreted as daily changes in stress on the interbank market as there is a seasonal pattern in the use of the deposit facility. That seasonal pattern stems from the fact that Eurosystem counterparties have to meet a reserve requirement on an average basis. Hence, it is better to watch the money market liquidity surplus, defined as the sum of the recourse to the deposit facility and the current account holdings in excess of the required reserves, as a proxy for the central bank’s intermediation role on the money market. Second, high recourse to the deposit facility is an automatic corollary to increased central bank liquidity provision because the relationship between the central bank and commercial banks can be seen as a closed system. Hence, as illustrated by some examples, large amounts being placed on the deposit facility are not informative as to whether or not the liquidity is actually “being put to use”, for instance, to grant credit to the non-financial sector or to pay back maturing bank debt. A number of examples illustrate this.
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Bibliographic InfoArticle provided by National Bank of Belgium in its journal Economic Review.
Volume (Year): (2012)
Issue (Month): I (June)
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monetary policy; budgetary policy; Federal Reserve; Eurosystem; economic and financial crisis; sovereign debt crisis; non-standard measures; euro area; United States; independence;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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