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Monitoring the unsecured interbank money market using TARGET2 data

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  • Ronald Heijmans
  • Richard Heuver
  • Dani�lle Walraven
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    Abstract

    We investigate the euro unsecured interbank money market during the current financial crisis. To identify the loans traded in this market and settled in TARGET2, we extend the algorithm developed by Furfine (1999) and adapt it to the European interbank loan market with maturity up to one year. This paper solves the problem of systematic errors which occur when you only look at overnight loans (as the Furfine algorithm does). These errors especially occur in times of (very) low interest rates. The algorithm allows us to track the actual interest rates rather than quoted interest rates on liquidity trading by participants of the Dutch part of the euro large value payment system (TARGET2-NL). The algorithm enables us to constitute the Dutch part of the EONIA, making it possible to compare the interest rates developments in the Dutch market to the European average ones. Based on the new algorithm, we develop a policy tool to monitor the interbank money market, both at macro level (whole market) and individual bank level (Money Market Monitoring Dashboard).

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    File URL: http://www.dnb.nl/binaries/Working%20Paper%20276_tcm46-246554.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 276.

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    Date of creation: Jan 2011
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    Handle: RePEc:dnb:dnbwpp:276

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    Related research

    Keywords: payment systems; financial stability; experiment; decision making;

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    Cited by:
    1. Galbiati, Marco & Soramäki, Kimmo, 2012. "Clearing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 609-626.

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