Liquidity Effects and the Determinants of Short-term Interest Rates in Italy (1991-92)
The paper uses Italian daily data from January 1991 to July 1992 (a period in which the lira belonged to the narrow EMS band without foreign exchange controls) to measure the relationship between liquidity and interest rates. The high quality of the data allows us to separate that part of interest rate variability due to foreign exchange factors (i.e. interest rate linkages in the EMS) from that attributable to other (`domestic') factors. We compare and evaluate alternative indicators of daily liquidity in a system of monthly average computation of reserve requirements. We find clear evidence of the existence of liquidity effects on interest rates and, in contrast to the pre-1990 period, find that foreign exchange factors have had a dominant influence, directly or through their effect on domestic liquidity, on interest rate variability.
|Date of creation:||May 1993|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:788. 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 references are entirely missing, you can add them using this form.