Advanced Search
MyIDEAS: Login

Central bank tenders: three essays on money market liquidity auctions

Contents:

Author Info

  • Välimäki, Tuomas

    ()
    (Bank of Finland Research)

Registered author(s):

    Abstract

    Most OECD central banks implement monetary policy by supplying reserves to the banking sector with the aim of influencing short-term interbank interest rates. To interpret the monetary policy stance accurately, one needs to be familiar with the mechanism for determining the money market equilibrium. The aim of this study is to deepen our understanding of the various effects of different intervention styles on the short-term money market when monetary policy is implemented with an operational framework similar to that of the European Central Bank (ECB). In the first essay of this study, we model banks' demand for central bank reserves (liquidity) for each day of an n-day reserve maintenance period and analyse liquidity determination under alternative liquidity policy rules that a central bank might apply in fixed rate tenders. It is shown that there is a tradeoff between the central bank's ability to keep a market interest rate close to the tender rate and the stability of liquidity holdings within a maintenance period. The second essay presents a model of a single bank's optimal bidding in the context of fixed rate liquidity tenders. It is shown that banks' bidding crucially depends on the central bank's liquidity policy for tender allotments. This essay also analyses ECB liquidity policy in terms of the model. The final essay models the money market equilibrium and analyses banks' bidding when the central bank uses variable rate tenders. The liquidity supply is fully endogenised by having the central bank minimise a loss function the includes deviations-from-target of interest rate and liquidity. ECB experiences with variable rate tenders are also studied in this essay.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. 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.
    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/erillisjulkaisut/Documents/E26.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Bank of Finland in its series Scientific Monographs with number E:26/2003.

    as in new window
    Length: 235 pages
    Date of creation: 25 Apr 2003
    Date of revision:
    Handle: RePEc:hhs:bofism:2003_026

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
    More information through EDIRC

    Related research

    Keywords: central bank operational framework; short-term interest rates; money markets; tenders; liquidity policy; bidding;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Christian Ewerhart & Nuno Cassola & Natacha Valla, 2007. "Declining Valuations And Equilibrium Bidding In Central Bank Refinancing Operations," Swiss Finance Institute Research Paper Series 07-22, Swiss Finance Institute.
    2. Bindseil, Ulrich & Nyborg, Kjell G., 2007. "Monetary policy implementation: A European Perspective," Discussion Papers 2007/10, Department of Business and Management Science, Norwegian School of Economics.
    3. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer, vol. 21(2), pages 241-261, June.
    4. Toporowski , Jan, 2006. "Open market operations: beyond the new consensus," Research Discussion Papers 14/2006, Bank of Finland.
    5. Alain Durré & Stefano Nardelli, 2008. "Volatility in the Euro area money market: effects from the monetary policy operational framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 307-322.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hhs:bofism:2003_026. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman) or (Päivi Määttä).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.