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Liquidity and Irish Interest Rates

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  • Patrick Honohan
  • Charles Conroy

Abstract

In recent papers (1993a and b) we have focused on the role of expectations in influencing Irish interest rates during the EMS period. Here we examine the role of monetary policy actions more directly, and explore the relation between interest rates, on the one hand, and actions of the monetary authorities in supplying liquidity to, and withdrawing it from, the market on the other. Though it is not clear just how effective recent Central Bank liquidity interventions have been in influencing interest rates, there is evidence of a change in policy towards a more aggressive attempt to stabilize rates after mid-1988. Before then, the reaction of Central Bank intervention to interest rate pressures was very modest (£20 million per one per cent movement in interest rates)and the impact cannot have been great.

Suggested Citation

  • Patrick Honohan & Charles Conroy, 1994. "Liquidity and Irish Interest Rates," Papers WP052, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp052
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    References listed on IDEAS

    as
    1. Patrick Honohan, 1994. "Interest Rate Policy in Practice: A Review with some Implications for the Irish Banking System in the EMS," Papers WP046, Economic and Social Research Institute (ESRI).
    2. Patrick Honohan & Charles Conroy, 1994. "Excess Returns on Irish Pound Assets in the EMS," Papers WP047, Economic and Social Research Institute (ESRI).
    3. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-353, May.
    4. Leeper, Eric M. & Gordon, David B., 1992. "In search of the liquidity effect," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 341-369, June.
    5. Leamer, Edward E, 1981. "Is It a Demand Curve, or Is It a Supply Curve? Partial Identification through Inequality Constraints," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 319-327, August.
    6. John Coleman, Wilbur II & Gilles, Christian & Labadie, Pamela, 1992. "The liquidity premium in average interest rates," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 449-465, December.
    7. Giavazzi, Francesco & Spaventa, Luigi, 1990. "The `New' EMS," CEPR Discussion Papers 369, C.E.P.R. Discussion Papers.
    8. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
    9. Engel, Charles, 1992. "The Risk Premium and the Liquidity Premium in Foreign Exchange Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 871-879, November.
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