IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/0548.html
   My bibliography  Save this paper

A heterogeneous agent model for assessing the effects of capital regulation on the interbank money market under a corridor system

Author

Listed:
  • Jackson, Christopher

    () (Bank of England)

  • Noss, Joseph

    () (Bank of England)

Abstract

Money markets play an important role in the implementation of monetary policy. Their structure and dynamics have, however, changed significantly in recent years. In particular, a number of new banking regulations will affect the behaviour of money market participants, and so have the potential to affect money market interest rates. This paper offers a model to examine how prudential regulation might affect interbank overnight interest rates where the central bank implements monetary policy using a corridor system. Combined with a set of assumptions as to the cost banks might incur in meeting regulatory capital requirements, it offers a framework with which to explore how such prudential regulation might affect the dynamics of overnight interest rates. The results — which are illustrative — estimate the interest rates at which banks might borrow and lend reserves overnight in the presence of prudential regulation. They suggest that risk-weighted capital requirements might increase the average level of overnight interbank interest rates, while the regulatory minimum leverage ratio might decrease it. If applied to real-world data on central bank reserves balances and regulatory metrics, this model also offers an insight into how central bank policymakers could — if they so choose — amend their operational frameworks to account for the effects of regulation.

Suggested Citation

  • Jackson, Christopher & Noss, Joseph, 2015. "A heterogeneous agent model for assessing the effects of capital regulation on the interbank money market under a corridor system," Bank of England working papers 548, Bank of England.
  • Handle: RePEc:boe:boeewp:0548
    as

    Download full text from publisher

    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2015/swp548.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Whitesell, William, 2006. "Interest rate corridors and reserves," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1177-1195, September.
    2. Clemens Bonner & Sylvester Eijffinger, 2012. "The Impact of the LCR on the Interbank Money Market," DNB Working Papers 364, Netherlands Central Bank, Research Department.
    3. Clews, Roger & Salmon, Chris & Weeken, Olaf, 2010. "The Bank's money market framework," Bank of England Quarterly Bulletin, Bank of England, vol. 50(4), pages 292-301.
    4. William Poole, 1968. "Commercial Bank Reserve Management In A Stochastic Model: Implications For Monetary Policy," Journal of Finance, American Finance Association, vol. 23(5), pages 769-791, December.
    5. repec:dgr:kubcen:2012075 is not listed on IDEAS
    6. Jackson, Christopher & Sim , Mathew, 2013. "Recent developments in the sterling overnight money market," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 223-233.
    7. Bech, Morten & Keister, Todd, 2017. "Liquidity regulation and the implementation of monetary policy," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 64-77.
    8. Clemens Bonner & Sylvester C. W. Eijffinger, 2016. "The Impact of Liquidity Regulation on Bank Intermediation," Review of Finance, European Finance Association, vol. 20(5), pages 1945-1979.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Link, Thomas & Neyer, Ulrike, 2017. "Friction-induced interbank rate volatility under alternative interest corridor systems," DICE Discussion Papers 259, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Link, Thomas & Neyer, Ulrike, 2016. "Transaction Cost Heterogeneity in the Interbank Market and Monetary Policy Implementation under alternative Interest Corridor Systems," Annual Conference 2016 (Augsburg): Demographic Change 145853, Verein für Socialpolitik / German Economic Association.
    3. Armenter, Roc, 2016. "A Tractable Model Of The Demand For Reserves Under Nonlinear Remuneration Schemes," Working Papers 16-35, Federal Reserve Bank of Philadelphia.

    More about this item

    Keywords

    Monetary policy implementation; money markets; bank regulation; central bank operations.;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:boe:boeewp:0548. 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: (Digital Media Team). General contact details of provider: http://edirc.repec.org/data/boegvuk.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 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.