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A comprehensive model on the Euro overnight rate

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Author Info
Flemming Reinhardt Würtz () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Abstract

This paper presents a comprehensive model on the spread between the euro overnight rate and the key policy rate of the ECB. It is shown that the most important variables driving the level and the volatility of this spread are expectations about changes of the key policy rate and the projected liquidity conditions at the end of the reserve maintenance period. The model allows for an assessment of how these variables impact differently on the spread according to the different open market operating procedures and the liquidity management policy of the ECB. It is found that a fixed rate tender procedure effectively limits the downward potential of the spread, while, however, no evidence is identified that it should be more effective than a variable rate tender procedure in keeping overall the overnight rate close to the key policy rate. JEL Classification: C32; E43; E52.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 207.

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Length: 44 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:ecb:ecbwps:20030207

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Related research
Keywords: Overnight rate; open market operating procedures; liquidity management.;

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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. 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)
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  2. 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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  3. 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!]
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  4. Ulrich Bindseil, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 137, European Central Bank. [Downloadable!]
  5. 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.
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  6. Ulrich Bindseil & Franz Seitz, 2001. "The supply and demand for Eurosystem deposits - the first 18 months," Working Paper Series 44, European Central Bank. [Downloadable!]
  7. Ayuso, Juan & Repullo, Rafael, 2001. "Why did the banks overbid? An empirical model of the fixed rate tenders of the European Central Bank," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 857-870, November. [Downloadable!] (restricted)
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  1. Leonardo Bartolini & Alessandro Prati, 2003. "The execution of monetary policy: a tale of two central banks," Staff Reports 165, Federal Reserve Bank of New York. [Downloadable!]
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  2. Vitor Gaspar & Gabriel Pérez Quir? & Hugo Rodr?uez Mendiz?al, 2004. "Interest Rate Determination in the Interbank Market," UFAE and IAE Working Papers 603.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
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