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Interbank Rate and the Liquidity of the Market

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  • Luis A. Ahumada
  • Álvaro García
  • Luis Opazo
  • Jorge Selaive

Abstract

In this paper we study the dynamics of the interbank rate in Chile, with special attention to the role of liquidity provided by private depositors and by the central bank’s open market operations on a daily basis. The main aim of this paper is the use of disaggregated and high frequency data on such variables. The most relevant findings are related to the statistical and economic significance of speed of convergence, calendar effects and repos operations. The Central Bank plays a more important role injecting than draining liquidity through discretionary operations. However, there are not asymmetries in terms of the effectiveness of the discretionary injections and drainages operations depending on the liquidity market status. In terms of effect by class of bank, large- and medium-size banks are less receptive to monetary operations; by contrast small-size banks are the most responsive, which is consistent with its traditional position as a liquidity demander. Finally, private deposits do not play an important role on the dynamics of the interbank rate during the sample period.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 516.

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Date of creation: Apr 2009
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Handle: RePEc:chb:bcchwp:516

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  1. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  2. James D. Hamilton & Oscar Jorda, 2002. "A Model of the Federal Funds Rate Target," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1135-1167, October.
  3. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2002. "Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 137-59, February.
  4. Kevin Cowan & David Rappoport & Jorge Selaive, 2007. "High Frequency Dynamics of the Exchange Rate in Chile," Working Papers Central Bank of Chile 433, Central Bank of Chile.
  5. Pierluigi Balduzzi & Giuseppe Bertola & Silverio Foresi & Leora Klapper, 1997. "Interest Rate Targeting and the Dynamics of Short-Term Rates," NBER Working Papers 5944, National Bureau of Economic Research, Inc.
  6. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
  8. Spindt, Paul A. & Hoffmeister, J. Ronald, 1988. "The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(04), pages 401-416, December.
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