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Sporadic manipulation in money markets with central bank standing facilities

  • Ewerhart, Christian
  • Cassola, Nuno
  • Ejerskov, Steen
  • Valla, Natacha

In certain market environments, a large investor may benefit from building up a futures position first and trading subsequently in the spot market (Kumar and Seppi, 1992). The present paper identifies a variation of this type of manipulation that might occur in money markets with an interest rate corridor. We show that manipulation involving the use of central bank facilities would be observable only sporadically. The probability of manipulation decreases when the central bank uses an active liquidity management. Manipulation can also be reduced by widening the interest rate corridor. JEL Classification: D84, E52

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Paper provided by European Central Bank in its series Working Paper Series with number 0399.

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Date of creation: Oct 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040399
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  1. Gabriel Pérez-Quirós & Hugo Rodríguez Mendizábal, 2015. "The Daily Market for Funds in Europe: What has Changed with the EMU?," Working Papers 22, Barcelona Graduate School of Economics.
  2. Mark Bagnoli & Barton L. Lipman, 1996. "Stock Price Manipulation Through Takeover Bids," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 124-147, Spring.
  3. Benabou, Roland & Laroque, Guy, 1992. "Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 921-58, August.
  4. Kumar, Praveen & Seppi, Duane J, 1992. " Futures Manipulation with "Cash Settlement."," Journal of Finance, American Finance Association, vol. 47(4), pages 1485-502, September.
  5. Allen, Franklin & Gale, Douglas, 1992. "Stock-Price Manipulation," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 503-29.
  6. Vila, Jean-Luc, 1989. "Simple games of market manipulation," Economics Letters, Elsevier, vol. 29(1), pages 21-26.
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