An Econometric Analysis of Deposit Rates, Security Holdings and Last-Resort Borrowing in the Short-Term Money Market

R. H. Allan and T. J. Valentine
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T. J. Valentine: The University of Melbourne and the Australian National University respectively. An earlier version of this paper was presented to the 48th ANZAAS Congress. Most of the work for it was done while the authors were associated with the Economics Department, Research School of Social Sciences, A.N.U. The second author is grateful to the Reserve Bank of Australia for support received that time. We are indebted to H.N. Johnston, M.A. Neil, A.R. Hall, two referees of this Journal, an ANZAAS referee and participants in the ANZAAS session at which the paper was presented for their comments. We are also grateful to the RBA who provided some of the data used in the study and to Ellen Ward and P. Kortenhorst for research assistance.

Australian Journal of Management, 1978, vol. 3, issue 1, 1-15

Abstract: The model developed in this paper explains the last-resort borrowing, deposit rate and portfolio decisions of dealers in the official short-term money market. Equations based on the model have been estimated from monthly data and they provide a very good explanation of the variables which are the subject of the study. They indicate that the last-resort rate has a significant influence on the rates paid on deposits with the dealers. Some equations explaining the supply of funds to the dealers have also been estimated. An important implication of these equations is that trading banks hold these deposits as a liquidity reserve against drawings on overdraft accounts. The policy implications of the results are discussed in the final section of the paper.

Keywords: DEPOSIT RATES; LAST-RESORT BORROWING; MONEY; OVERDRAFT LIMITS; SHORT-TERM MONEY MARKET (search for similar items in EconPapers)
Date: 1978
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:3:y:1978:i:1:p:1-15

DOI: 10.1177/031289627800300101

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