The euro area interbank market and the liquidity management of the eurosystem in the financial crisis

Achim Hauck () and Ulrike Neyer

No 9, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: This paper develops a theoretical model which explains several stylized facts observed in the euro area interbank market after the collapse of Lehman Brothers in 2008. The model shows that if costs of participating in the interbank market are high, the central bank assumes an intermediary function between liquidity surplus banks and liquidity deficit banks and thereby replaces the interbank market. From a policy perspective, we argue that possible measures of the Eurosystem to reactivate the interbank market may conflict, inter alia, with monetary policy aims.

Keywords: Liquidity; Monetary Policy Instruments; Interbank Market; Financial Crisis (search for similar items in EconPapers)
JEL-codes: E52 E58 G01 G21 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-fmk, nep-mac and nep-mon
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:09

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