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The Influence of a Heterogeneous Banking Sector on the Interbank Market Rate in the Euro Area

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  • Ulrike Neyer
  • Jürgen Wiemers
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    Abstract

    This paper presents an interbank market model with a heterogeneous banking sector. We show that banks participate in the interbank market because they differ in marginal costs of obtaining funds from the European Central Bank. Our model shows that this heterogeneity implies intermediation by banks with relatively low marginal costs. The resulting positive spread between the interbank market rate and the central bank rate is determined by transaction costs in the interbank market, total liquidity needs of the banking sector, costs of obtaining funds from the central bank, and the distribution of the latter across banks.

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    Bibliographic Info

    Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

    Volume (Year): 140 (2004)
    Issue (Month): III (September)
    Pages: 395-428

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    Handle: RePEc:ses:arsjes:2004-iii-6

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    Related research

    Keywords: monetary policy; interbank money market; European Central Bank; monetary policy instruments;

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    5. Quiro, G.P. & Mendizabal, H.R., 2001. "The Daily Market for Funds in Europe: Has Something Changed with the EMU," Papers 67, Quebec a Montreal - Recherche en gestion.
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    Cited by:
    1. Linzert, Tobias & Schmidt, Sandra, 2008. "What explains the spread between the euro overnight rate and the ECB's policy rate?," Working Paper Series 0983, European Central Bank.
    2. Cassola, N. & Ewerhart , C. & Valla, N., 2006. "Declining Valuations and Equilibrium Bidding Central Bank Refinancing Operations," Working papers 151, Banque de France.
    3. Ewerhart, Christian & Cassola, Nuno & Valla, Natacha, 2010. "Declining valuations and equilibrium bidding in central bank refinancing operations," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 30-43, January.
    4. Odermann, Alexander & Cremers, Heinz, 2013. "Komponenten und Determinanten des Credit Spreads: Empirische Untersuchung während Phasen von Marktstress," Frankfurt School - Working Paper Series 204, Frankfurt School of Finance and Management.

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