Manipulation in Money Markets

Christian Ewerhart, Nuno Cassola, Steen EJjerksov and Natacha Valla
Additional contact information
Nuno Cassola: European Central Bank
Steen EJjerksov: Danmarks Nationalbank

No 06-29, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Interest rate derivatives are among the most actively traded financial instruments in the main currency areas. With values of positions reacting immediately to the underlying index of daily interbank rates, manipulation has become an increasing challenge for the operational implementation of monetary policy. To address this issue, we study a microstructure model in which a commercial bank may have strategic recourse to central bank standing facilities. We characterise an equilibrium in which market rates will be manipulated with strictly positive probability. Our findings have an immediate bearing on recent developments in the Sterling and Euro money markets.

JEL-codes: D84 E52 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2006-11
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Manipulation in Money Markets (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0629

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