A Market for Intra-day Funds: Does it Have Implications for Monetary Policy?
The UK is due to move to a system of real-time gross settlement (RTGS) later this year. Although the decision to move to RTGS was based on prudential concerns, this paper considers whether it has any implications for the implementation of monetary policy. In particular, the move could, in theory, lead to the development of an intra-day funds market which in turn would imply the existence of intra-day interest rates. Although the paper argues that such a market is unlikely to develop in the near term, it continues by developing a simple theoretical framework to analyse the intra-day funds market and the intra-day yield curve. The paper derives two main results from this model. First, intra-day interest rates of a given duration could be highly volatile, even in the absence of shocks, since rates will vary depending on how close to the end of the trading day the loan is taken out. Second, the provision of intra-day liquidity does not effect a central bank's ability to control one-day (or longer) interest rates. As long as intra-day loans have to be repaid at some point during the day, the Bank will retain control over the one-day interest rate. As a result, extending the opening hours of the intra-day market (i.e. the period over which the discount window is open) could help reduce Herstatt risk without unduly influencing monetary control.
|Date of creation:||Mar 1996|
|Contact details of provider:|| Postal: Bank of England, Threadneedle Street, London, EC2R 8AH|
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
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.:
- Quah, Danny & Vahey, Shaun P, 1995.
"Measuring Core Inflation?,"
Royal Economic Society, vol. 105(432), pages 1130-1144, September.
- Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
- Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
- Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
- Tom Doan, "undated". "RATS programs to replicate Quah and Vahey core inflation estimation," Statistical Software Components RTZ00139, Boston College Department of Economics.
- Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
- Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
- David Barr & Bahram Pesaran, 1995. "An assessment of the relative importance of real interest rates, inflation and term premia in determining the prices of real and nominal UK bonds," Bank of England working papers 32, Bank of England. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:46. 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)
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.