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Monetary Policy Efficiency in Conditions of Excess Liquidity Withdrawal

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  • Martin Mandel
  • Vladimír Tomšík

Abstract

In case that a central bank is withdrawing excess liquidity, there arises a question whether the monetary policy based on repo operations (withdrawal repo) is identically efficient as the monetary policy relying on repo rate connected with reverse repo (issuance repo) when central banks provide liquidity. The analysis of this problem is a main subject of the article. Authors develop microeconomic model of commercial bank behaviour, which is used for the definition of conditions when the interest rate policy of central bank based alternatively on repo rates for repo and reverse repo operations is efficient. Statistical data (time series of 1998 - 2011, monthly data frequency) are analysed and econometric verification of alternative forms of econometric models is performed. The authors arrived at a conclusion that the Czech National Bank's monetary policy operating in conditions of excess liquidity withdrawal through repo operations is efficient. In case of the Czech Republic an increase in repo rate on withdrawal repo should lead to an increase in interest rates of commercial banks and to a reduction in the credit activity of commercial banks and hence to the successful implementation of Czech National Bank's restrictive monetary policy.

Suggested Citation

  • Martin Mandel & Vladimír Tomšík, 2014. "Monetary Policy Efficiency in Conditions of Excess Liquidity Withdrawal," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(1), pages 3-23.
    • Handle: RePEc:prg:jnlpep:v:2014:y:2014:i:1:id:470:p:3-23
    DOI: 10.18267/j.pep.470
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    References listed on IDEAS

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    Cited by:

    1. Tomas Klinger & Petr Teply, 2016. "The Nexus Between Systemic Risk and Sovereign Crises," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 50-69, February.
    2. Oxana Babecka Kucharcukova & Alexis Derviz & Vaclav Hausenblas & Michal Hlavacek & Mark Joy & Narcisa Kadlcakova & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Ivana Kubicova & Jitka Lesanovska, 2014. "Macroprudential Research: Selected Issues," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 12, number rb12/2 edited by Jan Babecky & Borek Vasicek, January.
    3. Dušan Staniek, 2018. "The Expectations Hypothesis in the Theory and Practice of Current Interest Rate Instruments [Hypotéza očekávání v teorii a praxi současných úrokových instrumentů]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2018(2), pages 61-79.
    4. Hana Džmuráňová & Petr Teplý, . "Why Are Savings Accounts Perceived as Risky Bank Products?," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-17.
    5. Hana Džmuráňová & Petr Teplý, 2016. "Why Are Savings Accounts Perceived as Risky Bank Products?," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(5), pages 617-633.
    6. Dušan Staniek, 2016. "The Czech Crown Money Market as the Source for Pricing Customer Cash Products," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2016(3), pages 139-154.
    7. Frantisek Brazdik & Jan Bruha & Michal Franta & David Havrlant & Tibor Hledik & Tomas Holub & Zuzana Humplova & Frantisek Kopriva & Jiri Polansky & Marek Rusnak & Jaromir Tonner, 2015. "Forecasting," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 13, number rb13/1 edited by Jan Babecky & Kamil Galuscak, January.
    8. Michal Andrle & Oxana Babecka Kucharcukova & Jaromir Baxa & Jan Bruha & Peter Claeys & Jan Filacek & Jakub Mateju & Miroslav Plasil & Serhat Solmaz & Borek Vasicek, 2015. "Monetary Policy Challenges in a Low-Inflation Environment," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 13, number rb13/2 edited by Jan Babecky & Michal Franta, January.
    9. Jan Bruha & Jiri Polansky & Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek & Jan Babecky & Kamil Galuscak & Lubomir Lizal & Diana Zigraiova, 2016. "Topics in Labour Markets," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 14, number rb14/1 edited by Jan Babecky, January.
    10. Miroslav Plasil & Jakub Seidler & Petr Hlavac & Volha Audzei & Jakub Mateju & Michal Kejak & Simona Malovana & Jan Frait, 2016. "Financial Cycles and Macroprudential and Monetary Policies," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 14, number rb14/2 edited by Jan Babecky & Michal Hlavacek, January.
    11. Dušan Staniek, . "Cross-Currency Basis Spread and Its Impact on Corporate Lending Rates in the Czech Banking Sector," Prague Economic Papers, Prague University of Economics and Business, vol. 0.

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    More about this item

    Keywords

    Czech National Bank; econometric model; repo rate; transmission mechanism of monetary policy;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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