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Interest rate determination in the interbank market Author info | Abstract | Publisher info | Download info | Related research | Statistics Vítor Gaspar () (Banco de Portugal, 148, Rua do Comercio, 1101 Lisbon Codex, Portugal. )
Gabriel Pérez Quirós (Banco de España and CEPR )
Hugo Rodríguez Mendizábal (Universitat Autònoma de Barcelona and CENTRA)
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The purpose of this paper is to study the determinants of equilibrium in the market for daily funds. We use the EONIA panel database which includes daily information on the lending rates applied by contributing commercial banks. The data clearly shows an increase in both the time series volatility and the cross section dispersion of rates towards the end of the reserve maintenance period. These increases are highly correlated. With respect to quantities, we find that the volume of trade as well as the use of the standing facilities are also larger at the end of the maintenance period. Our theoretical model shows how the operational framework of monetary policy causes a reduction in the elasticity of the supply of funds by banks throughout the reserve maintenance period. This reduction in the elasticity together with market segmentation and heterogeneity are able to generate distributions for the interest rates and quantities traded with the same properties as in the data.
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Paper provided by European Central Bank in its series Working Paper Series with number
351.
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Length: 48 pages
Date of creation: Apr 2004Date of revision:
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Keywords: Overnight interest rate Monetary policy instruments Eonia panel. Other versions of this item:
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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