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Changes in market functioning and central bank policy: an overview of the issues

Author

Listed:
  • Marvin J. Barth
  • Philip D. Wooldridge
  • Eli M Remolona

Abstract

In recent years, a number of structural developments have had a significant influence on the functioning of financial markets. The most important of these developments are the introduction of the euro, the spread of electronic trading, shifts in the constellation and behaviour of market participants and changes in relative supplies of different assets. There is some evidence that such developments have led to shifts in liquidity among different market segments and, moreover, that market liquidity is less robust than in the past. Furthermore, some of the largest government securities markets have begun to lose their pre-eminence as centres for price discovery about macroeconomic fundamentals, while credit derivative, corporate bond and equity markets are all vying to become the locus for price discovery about credit risk. These changes in market functioning pose various challenges for central bank policy, including what role central banks should play in promoting robust liquidity, how best to gauge market expectations, and whether the conduct of monetary policy operations should be adjusted. This paper served as the background paper for the Autumn Central Bank Economists' Meeting held at the BIS on 15-16 October 2001. In addition to setting out the issues for discussion, it summarises the main findings of the other papers presented at the meeting (the full versions of which can be found in

Suggested Citation

  • Marvin J. Barth & Philip D. Wooldridge & Eli M Remolona, 2002. "Changes in market functioning and central bank policy: an overview of the issues," BIS Working Papers 120, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:120
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    References listed on IDEAS

    as
    1. Jean-Pierre Zigrand & Jon Danielsson & Hyun Song Shin, 2001. "Asset Price Dynamics with Value-at-Risk Constrained Traders," FMG Discussion Papers dp394, Financial Markets Group.
    2. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
    3. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-150, Autumn.
    4. John Hawkins & Dubravko Mihaljek, 2001. "The banking industry in the emerging market economies: competition, consolidation and systemic stability: an overview," BIS Papers chapters,in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 1-44 Bank for International Settlements.
    5. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108.
    6. Francis Breedon, 2001. "Market liquidity under stress: observations from the FX market," BIS Papers chapters,in: Bank for International Settlements (ed.), Market liquidity: proceedings of a workshop held at the BIS, volume 2, pages 149-151 Bank for International Settlements.
    7. Bank for International Settlements, 2001. "The banking industry in the emerging market economies: competition, consolidation and systemic stability," BIS Papers, Bank for International Settlements, number 04, November.
    8. Ingo Fender, 2000. "Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy," BIS Working Papers 94, Bank for International Settlements.
    9. Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
    10. Bank for International Settlements, 2001. "Electronic finance: a new perspective and challenges," BIS Papers, Bank for International Settlements, number 07, November.
    11. Christian Upper, 2001. "How safe was the "Safe Haven"? Financial market liquidity during the 1998 turbulences," BIS Papers chapters,in: Bank for International Settlements (ed.), Market liquidity: proceedings of a workshop held at the BIS, volume 2, pages 241-266 Bank for International Settlements.
    12. Garry J. Schinasi & T. Todd Smith & Charles Frederick Kramer, 2001. "Financial Implications of the Shrinking Supply of U.S. Treasury Securities," IMF Working Papers 01/61, International Monetary Fund.
    13. Bank for International Settlements, 2000. "Stress Testing by Large Financial Institutions: Current Practice and Aggregation Issues," CGFS Papers, Bank for International Settlements, number 14.
    14. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Bank for International Settlements, 2001. "The changing shape of fixed income markets: a collection of studies by central bank economists," BIS Papers, Bank for International Settlements, number 05, November.
    16. Craig Furfine & Eli M. Remolona, 2005. "Price discovery in a market under stress: the U.S. Treasury market in fall 1998," Working Paper Series WP-05-06, Federal Reserve Bank of Chicago.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Bastidon, Cécile & Gilles, Philippe & Huchet, Nicolas, 2008. "The international lender of last resort and selective bail-out," Emerging Markets Review, Elsevier, vol. 9(2), pages 144-152, June.
    2. Cecile Bastidon & Philippe Gilles & Nicolas Huchet, 2008. "A Selective Bail-Out International Lending of Last Resort Model," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 103-114, May.
    3. Maureen O'Hara, 2004. "Liquidity and Financial Market Stability," Working Paper Research 55, National Bank of Belgium.
    4. repec:wsi:jicepx:v:04:y:2013:i:02:n:s1793993313500117 is not listed on IDEAS
    5. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters,in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42 Bank for International Settlements.
    6. Bank for International Settlements, 2016. "Regulatory change and monetary policy," CGFS Papers, Bank for International Settlements, number 55.

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