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Multiple equilibrium overnight rates in a dynamic interbank market game

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Listed author(s):
  • Jens Tapking

    (European Central Bank)

Abstract

We analyse a two period model of the interbank market, i.e. the market at which banks trade liquidity. We assume that banks do not take the interbank interest rate as given, but multilaterally negotiate on interest rates and transaction volumes. The solution concept applied is the Shapley value. We show that there is a multiplicity of average equilibrium interest rates of the Þrst period so that the average interest rate in this period does not convey any information on the expected liquidity situation at the interbank market.

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File URL: http://econwpa.repec.org/eps/fin/papers/0409/0409018.pdf
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Paper provided by EconWPA in its series Finance with number 0409018.

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Date of creation: 07 Sep 2004
Handle: RePEc:wpa:wuwpfi:0409018
Note: Type of Document - pdf
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  • G - Financial Economics

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  1. Gabriel Pérez Quirós & Hugo Rodríguez, 2000. "The daily market for funds in Europe: Has something changed with the EMU?," Economics Working Papers 474, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The microstructure of the euro money market," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 895-948, November.
  3. Tapking, Jens, 2002. "The Eurosystem's Standing Facilities in a General Equilibrium Model of the European Interbank Market," Discussion Paper Series 1: Economic Studies 2002,20, Deutsche Bundesbank, Research Centre.
  4. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
  5. Perez-Castrillo, David & Wettstein, David, 2001. "Bidding for the Surplus : A Non-cooperative Approach to the Shapley Value," Journal of Economic Theory, Elsevier, vol. 100(2), pages 274-294, October.
  6. 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.
  7. Butnariu, Dan & Klement, Erich Peter, 1996. "Core, Value and Equilibria for Market Games: On a Problem of Aumann and Shapley," International Journal of Game Theory, Springer;Game Theory Society, vol. 25(2), pages 149-160.
  8. Furfine, Craig H, 2001. "Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market," The Journal of Business, University of Chicago Press, vol. 74(1), pages 33-57, January.
  9. Hart, Sergiu & Mas-Colell, Andreu, 1996. "Bargaining and Value," Econometrica, Econometric Society, vol. 64(2), pages 357-380, March.
  10. Ho, Thomas S Y & Saunders, Anthony, 1985. " A Micro Model of the Federal Funds Market," Journal of Finance, American Finance Association, vol. 40(3), pages 977-988, July.
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Cited by:

  1. Schanz, Jochen, 2009. "How do different models of foreign exchange settlement influence the risks and benefits of global liquidity management?," Bank of England working papers 374, Bank of England.
  2. Edoardo Rainone, 2015. "Testing information diffusion in the decentralized unsecured market for euro funds," Temi di discussione (Economic working papers) 1022, Bank of Italy, Economic Research and International Relations Area.
  3. Bech, Morten & Monnet, Cyril, 2016. "A search-based model of the interbank money market and monetary policy implementation," Journal of Economic Theory, Elsevier, vol. 164(C), pages 32-67.

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