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How does the ECB allot liquidity in its weekly main refinancing operations? A look at the empirical evidence

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Author Info
Steen Ejerskov () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Clara Martin Moss ()
Livio Stracca () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)

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Abstract

This paper provides a simple weekly model of the regular supply of liquidity in the euro area, with a view to understanding the functioning of the euro area money market, The main result of the analysis is that liquidity has normally been provided by the ECB in a neutral and smooth manner, but also that there has been some attempt, albeit very limited, to correct deviations of the overnight rate from the main refinancing rate. Moreover, the paper finds that liquidity has affected the overnight interest rate to a significant extent only after the last main refinancing operation of the maintenance period, when it is not possible for the ECB to adjust liquidity imbalances except by making recourse to fine-tuning operations. JEL Classification: E52; E43; G21.

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Paper provided by European Central Bank in its series Working Paper Series with number 244.

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Length: 51 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:ecb:ecbwps:20030244

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Related research
Keywords: Bank reserves; monetary policy; martingale hypothesis; liquidity effect; liquidity policy.;

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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. 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!]
    Other versions:
  2. Daniel L. Thornton, 2001. "Identifying the liquidity effect at the daily frequency," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 59-82. [Downloadable!]
  3. Feinman, Joshua N, 1993. "Estimating the Open Market Desk's Daily Reaction Function," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 231-47, May. [Downloadable!] (restricted)
  4. 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)
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  5. 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:
  6. 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)
  7. Paolo Angelini, 2008. "Liquidity And Announcement Effects In The Euro Area," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 67(1), pages 1-20, March.
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  8. Ulrich Bindseil, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 137, European Central Bank. [Downloadable!]
  9. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March. [Downloadable!] (restricted)
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  10. Thornton, Daniel L., 2001. "The Federal Reserve's operating procedure, nonborrowed reserves, borrowed reserves and the liquidity effect," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1717-1739, September. [Downloadable!] (restricted)
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  11. Ulrich Bindseil & Franz Seitz, 2001. "The supply and demand for Eurosystem deposits - the first 18 months," Working Paper Series 44, European Central Bank. [Downloadable!]
  12. John B. Taylor, 2001. "Expectations, open market operations, and changes in the federal funds rate," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 33-58. [Downloadable!]
  13. Alessandro Prati & Leonardo Bartolini & Giuseppe Bertola, 2001. "The overnight interbank market: evidence from the G-7 and the Euro zone," Staff Reports 135, Federal Reserve Bank of New York. [Downloadable!]
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  14. 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!]
    Other versions:
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.)

  1. Linzert, Tobias & Schmidt, Sandra, 2007. "What Explains the Spread Between the Euro Overnight Rate and the ECB?s Policy Rate?," ZEW Discussion Papers 07-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  2. Ulrike Neyer & Jürgen Wiemers, 2004. "The Influence of a Heterogeneous Banking Sector on the Interbank Market Rate in the Euro Area," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 395-428, September. [Downloadable!]
  3. Julius Moschitz, 2004. "The determinants of the overnight interest rate in the euro area," Working Paper Series 393, European Central Bank. [Downloadable!]
  4. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, 2003. "Optimal allotment policy in the eurosystem’s main refinancing operations?," Working Paper Series 295, European Central Bank. [Downloadable!]
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