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The daily market for funds in Europe: has something changed with the EMU?

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Author Info
Hugo Rodriguez Mendizabal (Autonomous University of Barcelona - Department of Economics and Economic History, Edifici B, Campus Bellaterra, 08193 Barcelona, Spain.)
Gabriel Perez-Quiros (Government of the Kingdom of Spain - Economic Bureau of the President, 28071 Madrid, Spain.)

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Abstract

This paper presents evidence that the existence of deposit and lending facilities combined with an averaging provision for the reserve requirement are powerful tools to stabilize the overnight rate. We reach this conclusion by comparing the behavior of this rate in Germany before and after the beginning of the EMU. The analysis of the German experience is useful because it allows us to isolate specifically the effect on the overnight rate of these particular instruments of monetary policy. To show that this outcome is general and not a particular result for the German market, we develop a theoretical model of reserve management which is able to reproduce our empirical findings. JEL Classification: E44; E52.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 067.

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Length: 39 pages
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:ecb:ecbwps:20010067

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Related research
Keywords: Overnight rates; reserve demand; Martingale hypothesis.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
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  2. 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. [Downloadable!]
  3. John Y. Campbell, 1987. "Money Announcements, the Demand for Bank Reserves and the Behavior of the Federal Funds Rate Within the Statement Week," NBER Working Papers 1806, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  5. Ulrich Bindseil & Franz Seitz, 2001. "The supply and demand for Eurosystem deposits - the first 18 months," Working Paper Series 44, European Central Bank. [Downloadable!]
  6. Leonardo Bartolini & Giuseppe Bertoli & Alessandro Prati, 2000. "Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention," Econometric Society World Congress 2000 Contributed Papers 0123, Econometric Society. [Downloadable!]
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