Understanding the Cost Difference Between Intraday and Overnight Liquidity
Central banks typically supply intraday and overnight reserves at very different costs. The cost of intraday reserves is very close to zero, while the cost of overnight reserves is much higher. In this paper, we discuss the different roles played by reserves intraday and overnight and review recent work trying to understand and explain that difference. We argue that while there is now broad agreement that intraday reserves should have a very low cost. Whether overnight reserves should have a high marginal cost remains an open question.
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|Date of creation:||01 Jan 2003|
|Date of revision:|
|Publication status:||Published in Journal of Financial Transformation 2008, vol. 24, pp. 105-107|
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