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Excess reserves and implementation of monetary policy of the ECB

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  • Bindseil, Ulrich
  • Camba-Méndez, Gonzalo
  • Hirsch, Astrid
  • Weller, Benedict
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    Abstract

    This paper explains to what extent excess reserves are and should be relevant today in the implementation of monetary policy, focusing on the speci?c case of the operational framework of the Eurosystem. In particular, this paper studies the impact that changes to the operational framework for monetary policy implementation have on the level and volatility of excess reserves. A ‘transaction costs’ model that replicates the rather speci?c intra-reserve maintenance period pattern of excess reserves in the euro area is developed. Simulation results presented not only show that excess reserves may increase considerably under some changes to the operational framework, but also that their volatility and hence unpredictability could. JEL Classification: E52, E58

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0361.

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    Date of creation: May 2004
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    Handle: RePEc:ecb:ecbwps:20040361

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    Keywords: excess reserves; liquidity management; monetary policy implementation;

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    References

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    1. 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.
    2. repec:fth:bfdipa:8/2001 is not listed on IDEAS
    3. Välimäki, Tuomas, 2001. "Fixed rate tenders and the overnight money market equilibrium," Research Discussion Papers 8/2001, Bank of Finland.
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    Cited by:
    1. Bindseil, Ulrich, 2004. "The operational target of monetary policy and the rise and fall of reserve position doctrine," Working Paper Series 0372, European Central Bank.
    2. Karel BRŮNA, 2010. "Monetary Policy Implementation and Liquidity Management of the Czech Banking System," European Financial and Accounting Journal, University of Economics, Prague, vol. 2010(3), pages 15-41.

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