IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Liquidity and Announcement Effects in the Euro Area

  • Paolo Angelini

    ()

    (Bank of Italy, Economic Research Department)

The paper analyzes the euro-area interbank market. The martingale hypothesis for the Eonia, the reference overnight interest rate, is tested and rejected. Such rejection is a sufficient condition for a liquidity effect, which is then estimated. The magnitude of the effect is found to depend on the perceived degree of persistence of the liquidity shock. At the beginning of the reserve maintenance period a liquidity drain amounting to 3 per cent of required reserves raises the Eonia by 4 basis points, by 13-15 points, by 25 points or more (up to the limits of the official rate corridor, i.e. roughly � 100 basis points), depending on whether it is expected to be purely temporary, to last at least through the following day or through the rest of the holding period. Non-purely-temporary effects may take place when the liquidity shock has some signaling value for the monetary policy stance; however, little if any evidence of shocks of this kind is found. The liquidity effect is read off the slope of a euro-area-wide demand equation for daily reserves which incorporates the current as well as the expected overnight rate among the regressors. The two elasticities are very similar in absolute value and have opposite signs; this is consistent with the announcement effect, the ability by the central bank to influence the current rate without resorting to open market operations. The area-wide demand curve is retrieved by estimating separate relationships for each of the 11 euro-area national banking systems. Some heterogeneity across the different countries is detected. In particular, in some cases the demand for reserves turns out to be interest rate-inelastic over the holding period, suggesting that there is room for further efficiency improvements.

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.bancaditalia.it/pubblicazioni/temi-discussione/2002/2002-0451/tema_451_02.pdf
Download Restriction: no

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 451.

as
in new window

Length:
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:bdi:wptemi:td_451_02
Contact details of provider: Postal: Via Nazionale, 91 - 00184 Roma
Web page: http://www.bancaditalia.it

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
  2. Coleman, Wilbur John, II & Gilles, Christian & Labadie, Pamela A, 1996. "A Model of the Federal Funds Market," Economic Theory, Springer, vol. 7(2), pages 337-57, February.
  3. Oscar Jorda & Selva Demiralp & Holly Liu & Jeffrey Williams, 2003. "The Announcement Effect: Evidence from Open Market Desk Data," Working Papers 14, University of California, Davis, Department of Economics.
  4. Demiralp, Selva & Jorda, Oscar, 2004. "The Response of Term Rates to Fed Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 387-405, June.
  5. Pérez Quirós, Gabriel & Rodríguez Mendizábal, Hugo, 2001. "The daily market for funds in Europe: Has something changed with the EMU?," Working Paper Series 0067, European Central Bank.
  6. Gaspar, Vítor & Pérez Quirós, Gabriel & Sicilia, Jorge, 2001. "The ECB monetary policy strategy and the money market," Working Paper Series 0069, European Central Bank.
  7. Sandro Trento & Massimo Warglien, 2001. "Nuove tecnologie e cambiamenti organizzativi: alcune implicazioni per le imprese italiane," Temi di discussione (Economic working papers) 428, Bank of Italy, Economic Research and International Relations Area.
  8. Simon Gilchrist, 2001. "Identifying the liquidity effect at the daily frequency (commentary)," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 59-82.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_451_02. 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: ()

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.