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Central bank forecasts of liquidity factors: Quality, publication and the control of the overnight rate

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  • Bindseil, Ulrich

Abstract

A simple model of the interaction between central bank liquidity management and the inter-bank overnight rate is suggested which allows analysing the publication of forecasts of liquidity factors by the European Central Bank adopted in June 2000. The paper argues that the main practical advantage of the publication of these forecasts is that it makes the signal extraction problem with regard to the central bank's intentions trivial and hence allows establishing a superior behavioural equilibrium between the central bank and the money market participants. In this equilibrium, the central bank can achieve a better steering of overnight rates than under private autonomous factor forecasts, depending of course also on the quality of liquidity forecasts. It is furthermore shown that the publication of an average of autonomous factors, such as adopted by the ECB, is, at least within the model presented, superior to the separate publication of autonomous factors for each single day JEL Classification: D84, E52

Suggested Citation

  • Bindseil, Ulrich, 2001. "Central bank forecasts of liquidity factors: Quality, publication and the control of the overnight rate," Working Paper Series 70, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:200170
    Note: 327704
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp070.pdf
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    Citations

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    Cited by:

    1. Alberto Cabrero & Gonzalo Camba-Mendez & Astrid Hirsch & Fernando Nieto, 2009. "Modelling the daily banknotes in circulation in the context of the liquidity management of the European Central Bank," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(3), pages 194-217.
    2. Emilio Barucci & Claudio Impenna & Roberto Reno, 2003. "The Italian overnight market: microstructure effects, the martingale hypothesis and the payment system," Temi di discussione (Economic working papers) 475, Bank of Italy, Economic Research and International Relations Area.
    3. Ewerhart, Christian, 2002. "A model of the Eurosystem's operational framework for monetary policy implementation," Working Paper Series 197, European Central Bank.
    4. Bindseil, Ulrich, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 137, European Central Bank.
    5. Alberto Cabrero & Gonzalo Camba-Mendez & Astrid Hirsch & Fernando Nieto, 2009. "Modelling the daily banknotes in circulation in the context of the liquidity management of the European Central Bank," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(3), pages 194-217.
    6. Ewerhart, Christian, 2002. "A model of the Eurosystem's operational framework for monetary policy implementation," Working Paper Series 0197, European Central Bank.
    7. Paolo Angelini, 2008. "Liquidity And Announcement Effects In The Euro Area," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 67(1), pages 1-20, March.
    8. Mr. Romain M Veyrune & Shaoyu Guo, 2019. "Autonomous Factor Forecast Quality: The Case of the Eurosystem," IMF Working Papers 2019/296, International Monetary Fund.
    9. Michael Boutros & Jonathan Witmer, 2020. "Monetary Policy Implementation in a Negative Rate Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 441-470, March.

    More about this item

    Keywords

    forecasts of liquidity factors;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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