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The Liquidity and Liquidity Distribution Effects in Emerging Markets; The Case of Jordan

  • Jérôme Vandenbussche
  • Stanley Watt
  • Szabolcs Blazsek

This paper analyzes the determinants of daily changes in Jordan's interbank market overnight rate. It not only quantifies the classic liquidity effect, but also uncovers a liquidity distribution effect on both sides of the market, and shows that their magnitude is a decreasing and convex function of the level of excess reserves. It finds that the volatility of rate changes depends much more on the reserve surplus accumulated within a maintenance period than on the level of excess reserves. As Carpenter and Demiralp (2006), it uses the series of the central bank's daily forecast errors to identify the liquidity effect.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/228.

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Length: 25
Date of creation: 01 Oct 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/228
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  1. Prati, Alessandro & Bartolini, Leonardo & Bertola, Giuseppe, 2003. "The overnight interbank market: Evidence from the G-7 and the Euro zone," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 2045-2083, October.
  2. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  3. He, Changli & Ter svirta, Timo & Malmsten, Hans, 2002. "Moment Structure Of A Family Of First-Order Exponential Garch Models," Econometric Theory, Cambridge University Press, vol. 18(04), pages 868-885, August.
  4. Moschitz, Julius, 2004. "The determinants of the overnight interest rate in the euro area," Working Paper Series 0393, European Central Bank.
  5. Paolo Angelini, 2002. "Liquidity and Announcement Effects in the Euro Area," Temi di discussione (Economic working papers) 451, Bank of Italy, Economic Research and International Relations Area.
  6. Gaspar, Vítor & Pérez Quirós, Gabriel & Rodríguez Mendizábal, Hugo, 2004. "Interest rate determination in the interbank market," Working Paper Series 0351, European Central Bank.
  7. Seth Carpenter & Selva Demiralp, 2004. "The liquidity effect in the federal funds market: evidence from daily open market operations," Finance and Economics Discussion Series 2004-61, Board of Governors of the Federal Reserve System (U.S.).
  8. Marius Jurgilas, 2006. "Interbank Markets under Currency Boards," Working papers 2006-19, University of Connecticut, Department of Economics.
  9. Uesugi, Iichiro, 2002. "Measuring the Liquidity Effect: The Case of Japan," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 289-316, September.
  10. Bindseil, Ulrich & Seitz, Franz, 2001. "The supply and demand for Eurosystem deposits - The first 18 months," Working Paper Series 0044, European Central Bank.
  11. Menelaos Karanasos & J. Kim, . "Moments of the ARMA-EGARCH Model," Discussion Papers 00/29, Department of Economics, University of York.
  12. Daniel L. Thornton, 2001. "Identifying the liquidity effect at the daily frequency," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 59-82.
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