IDEAS home Printed from
   My bibliography  Save this book

Liquidity forecasting


  • Simon T Gray


When central banks enter into transactions to implement their monetary policy, they necessarily make use of their own balance sheets. Whether they are undertaking open market operations (OMO) to inject or drain funds from the banking system, or allowing the banks to use standing facilities to borrow or deposit funds, the central bank's balance sheet will be impacted: the funds in question are commercial bank balances held at the central bank. Ideally, operations undertaken to implement policy should have a predictable impact on the economy, via the banking system. This means that the central bank needs to know the context in which it is operating: what is the current availability of commercial bank balances compared with the level of demand, and how is this expected to change in the near term? An accurate current picture and good forecast of the central bank's likely future balance sheet is required. The same information on the central bank's balance sheet is also needed if the central bank wishes to manage liquidity pro-actively. Most central banks do, whether it is to avoid a shortage of liquidity impacting on the payment system, or an excess impacting short-term yields and/or the exchange rate. This Handbook examines the issues involved in forecasting the central bank's balance sheet. This is normally referred to as 'liquidity forecasting' since the item on the balance sheet which central banks typically try to manage is commercial banks balances, a subset of high-powered liquidity.

Suggested Citation

  • Simon T Gray, 2008. "Liquidity forecasting," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 27.
  • Handle: RePEc:ccb:hbooks:27

    Download full text from publisher

    File URL:
    File Function: English version
    Download Restriction: no

    More about this item


    Liquidity forecasting;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ccb:hbooks:27. 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: (Maria Brady). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.