A model of the Eurosystem's operational framework for monetary poicy implementation

This file is part of IDEAS, which uses RePEc data

A model of the Eurosystem's operational framework for monetary poicy implementation

Author Info

Christian Ewerhart () (University of Bonn, Department of Economic, Adenauerallee 24-26, 53113 Bonn, Germany.)

Abstract

This paper offers a game theoretic model of liquidity provision through repeated central bank tenders, in the spirit of the operational framework of the Eurosystem. Banks are required to satisfy reserve requirements subject to an averaging provision over individual maintenance periods, and transactions may hang over into the respective subsequent period. It is shown that liquidity shocks are absorbed by the system by exponentially declining oscillations around the stationary equilibrium. When a policy rate cut is expected, bidders strategically reduce demand prior to the decision, which may unbalance the system. The anticipation of strategic behavior may generate an oscillation even before the maintenance period in which the decision is expected. When the recently released ECB proposal is implemented in the model, then the bidders' strategic motives are effectively eliminated. It is shown that, alternatively, bidding behavior can be corrected using a simple reimbursement scheme. JEL Classification: E51; G28.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 197.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 53 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:ecb:ecbwps:20020197

Contact details of provider:
Postal: Postfach 16 03 19, Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/home/html/index.en.html
More information through EDIRC

Order Information:
Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Email:

For technical questions regarding this item, or to correct its listing, contact: (Official Publications).

Other versions of this item:

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.:

Ho, Thomas S Y & Saunders, Anthony, 1985. " A Micro Model of the Federal Funds Market," Journal of Finance, American Finance Association, vol. 40(3), pages 977-88, July. [Downloadable!] (restricted)
Juan Ayuso & Rafael Repullo, 2000. "A Model of the Open Market Operations of the European Central Bank," Banco de EspaÃ±a Working Papers 0016, Banco de España. [Downloadable!]
Other versions:
- Ayuso, Juan & Repullo, Rafael, 2000. "A Model of the Open Market Operations of the European Central Bank," CEPR Discussion Papers 2605, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Ayuso, J. & Repullo, R., 2000. "A Model of the Open Market Operations of the European Central Bank," Papers 0011, Centro de Estudios Monetarios Y Financieros-.
- Juan Ayuso & Rafael Repullo, 2003. "A Model of the Open Market Operations of the European Central Bank," Economic Journal, Royal Economic Society, vol. 113(490), pages 883-902, October. [Downloadable!] (restricted)
Hellwig, Martin, 1994. "Liquidity provision, banking, and the allocation of interest rate risk," European Economic Review, Elsevier, vol. 38(7), pages 1363-1389, August. [Downloadable!] (restricted)
Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The microstructure of the euro money market," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 895-948, November. [Downloadable!] (restricted)
Other versions:
- Michele Manna & Philipp Hartmann & Andres Manzanares, 2001. "The microstructure of the Euro money market," Working Paper Series 080, European Central Bank. [Downloadable!]
- Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The Microstructure of the Euro Money Market," CEPR Discussion Papers 3081, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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)
Other versions:
- James D. Hamilton, 1995. "The Daily Market for Federal Funds," University of California at San Diego, Economics Working Paper Series 95-09, Department of Economics, UC San Diego.
Manna, Michele & Pill, Huw & Quiros, Gabriel, 2001. "The Eurosystem's Operational Framework in the Context of the ECB's Monetary Policy Strategy," International Finance, Blackwell Publishing, vol. 4(1), pages 65-99, Spring. [Downloadable!] (restricted)
Vitor Gaspar & Jorge Sicilia & Gabriel Perez-Quiros, 2001. "The ECB monetary policy strategy and the money market," Working Paper Series 069, European Central Bank. [Downloadable!]
Other versions:
- Vítor Gaspar & Gabriel Perez-Quiros & Jorge Sicilia, 2001. "The ECB Monetary Policy Strategy and the Money Market," Working Papers 47, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
- Gaspar, Vitor & Perez-Quiros, Gabriel & Sicilia, Jorge, 2001. "The ECB Monetary Policy Strategy and the Money Market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 325-42, October. [Downloadable!] (restricted)
Juan Ayuso & Rafael Repullo, 2000. "A Model of the Open Market Operations of the European Central Bank," Banco de EspaÃ±a Working Papers 0016, Banco de España. [Downloadable!]
Kjell G. Nyborg & Ulrich Bindseil & Ilya A. Strebulaev, 2002. "Bidding and performance in repo auctions - evidence from ECB open market operations," Working Paper Series 157, European Central Bank. [Downloadable!]
Other versions:
- Bindseil, Ulrich & Nyborg, Kjell G & Strebulaev, Ilya, 2004. "Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations," CEPR Discussion Papers 4367, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Bindseil, Ulrich & Nyborg, Kjell G. & Strebulaev, Ilya A., 2005. "Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations," Discussion Papers 2005/13, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
- Kjell G. Nyborg & Ulrich Bindseil & Ilya A. Strebulaev, 2005. "Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations," Working Papers 2005.92, Fondazione Eni Enrico Mattei. [Downloadable!]
Gabriel Pérez Quirós & Hugo Rodríguez, 2000. "The Daily Market for Funds in Europe: Has Something Changed with the EMU?," Economics Working Papers 474, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
Other versions:
- 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.
- Hugo Rodriguez Mendizabal & Gabriel Perez-Quiros, 2001. "The daily market for funds in Europe: has something changed with the EMU?," Working Paper Series 067, European Central Bank. [Downloadable!]
Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March. [Downloadable!] (restricted)
Other versions:
- James D. Hamilton, 1996. "Measuring the liquidity effect," Working Papers in Applied Economic Theory 96-06, Federal Reserve Bank of San Francisco.
- James D. Hamilton, 1996. "Measuring the Liquidity Effect," University of California at San Diego, Economics Working Paper Series 96-19, Department of Economics, UC San Diego.
Dieter Nautz & Jörg Oechssler, 2001. "The Repo Auctions of the European Central Bank and the Vanishing Quota Puzzle," Bonn Econ Discussion Papers bgse9_2001, University of Bonn, Germany. [Downloadable!]
Other versions:
- D. Nautz & J. Oechssler, . "The Repo Auctions of the European Central Bank and the Vanishing Quota Puzzle," Sonderforschungsbereich 373 1999-79, Humboldt Universitaet Berlin.
- Dieter Nautz & Jörg Oechssler, 2003. "The Repo Auctions of the European Central Bank and the Vanishing Quota Puzzle," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(2), pages 207-220, 06. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, 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.)

William Whitesell, 2003. "Tunnels and reserves in monetary policy implementation," Finance and Economics Discussion Series 2003-28, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]

Statistics

Access and download statistics

Did you know? About 1000 journals are listed on RePEc.

This page was last updated on 2009-12-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.