Estimating the time-varying reserve elasticity of money market rates in the euro area

Flavia Ungarelli and Thomas Kostka

Economic Bulletin Boxes, 2026, vol. 1

Abstract: This box presents a new approach to estimating the time-varying elasticity of euro area short-term money market rates to changes in excess liquidity. The approach is robust to the endogeneity between the price and volume of central bank liquidity as well as to shifts in the non-linear liquidity demand curve over time. It serves as a useful tool to monitor liquidity conditions in real time and to estimate the level of excess liquidity below which money market rates become sensitive to further reductions in excess liquidity. It currently indicates that this sensitivity remains negligible for both secured and unsecured money market rates in the euro area. JEL Classification: E52, E41, E43

Keywords: monetary policy; money markets (search for similar items in EconPapers)
Date: 2026-02
Note: 1763608
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbbox:2026:0001:6

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