 Overnight rate and signalling effects of central bank billsFabio Canetg and Daniel Kaufmann European Economic Review, 2022, vol. 143, issue C Abstract: We analyse the impact of interest-bearing central bank bills on financial market variables in Switzerland. The unique institutional setting allows us to identify the causal effects of two orthogonal shocks occurring on days with central bank bill auctions through heteroscedasticity: an overnight interest rate shock and a signalling shock. The first shock raises the overnight interest rate and modestly appreciates the exchange rate. The signalling shock appreciates the exchange rate more strongly. In addition, it lowers stock prices, long-term interest rates, as well as inflation expectations, and it raises corporate bond spreads. The signalling shock is economically more important for forward-looking variables than the overnight rate shock. The results suggest that liquidity-absorbing operations between official monetary policy decisions affect financial market variables by revealing information about the central bank’s future policy actions. Keywords: Central bank bills; Exit strategies; Liquidity-absorbing operations; Signalling; Monetary policy shocks; Identification through heteroscedasticity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:143:y:2022:i:c:s0014292122000216 DOI: 10.1016/j.euroecorev.2022.104060 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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