Demand for Reserves and the Central Bank's Management of Interest Rates
AbstractThe implementation of monetary policy is prevalently done by interest rate targeting with a short term market rate serving as operational target. The instruments for achieving the operational target are the provision of reserves and the interest rate charged in these transactions. This paper presents a model for the estimation of the demand curve for reserves, derived from the central bank's fixed rate tender auction and the interbank money market. Using data from Switzerland, the slope of the demand curve is estimated. Furthermore, properties of the demand curve such as the slope patterns in the course of a maintenance period and the slope in different monetary regimes are assessed. We find a steeper demand curve towards the end of the maintenance period and an increasing slope when the general interest rate level is high. Further, we investigate the role of the Swiss National Bank's (SNB) interest rate in the fixed rate tender auctions. There is evidence that the SNB uses its auction rate to guide the interbank market rate.
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Bibliographic InfoPaper provided by Swiss National Bank in its series Working Papers with number 2009-15.
Length: 29 pages
Date of creation: 2009
Date of revision:
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Implementation of Monetary Policy; Money Demand; Fixed Rate TenderAuction; Repo; Switzerland;
Other versions of this item:
- Sébastien Kraenzlin & Martin Schlegel, 2012. "Demand for Reserves and the Central Bank's Management of Interest Rates," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(IV), pages 531-555, December.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Sébastien Philippe Kraenzlin & Benedikt von Scarpatetti, 2011. "Bargaining Power in the Repo Market," Working Papers 2011-14, Swiss National Bank.
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