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Interest Rate Determination in the Interbank Market

Vitor Gaspar, Gabriel Pérez Quir? and Hugo Rodr?uez Mendiz?al ()
Additional contact information
Hugo Rodr?uez Mendiz?al: http://idea.uab.es/~hrodriguez

Authors registered in the RePEc Author Service: Hugo Rodriguez Mendizabal () and Gabriel Perez Quiros

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: The purpose of this paper is to study the determinants of equilibrium in the market for daily funds. We use the EONIA panel database which includes daily information on the lending rates applied by contributing commercial banks. The data clearly shows an increase in both the time series volatility and the cross section dispersion of rates towards the end of the reserve maintenance period. These increases are highly correlated. With respect to quantities, we find that the volume of trade as well as the use of the standing facilities are also larger at the end of the maintenance period. Our theoretical model shows how the operational framework of monetary policy causes a reduction in the elasticity of the supply of funds by banks throughout the reserve maintenance period. This reduction in the elasticity together with market segmentation and heterogeneity are able to generate distributions for the interest rates and quantities traded with the same properties as in the data.

Keywords: Overnight interest rate; Monetary policy instruments; Eonia panel (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 32
Date: 2004-02-20
New Economics Papers: this item is included in nep-dev, nep-fmk, nep-mon and nep-rmg
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http://pareto.uab.es/wp/2004/60304.pdf (application/pdf)

Related works:
Working Paper: Interest rate determination in the interbank market (2004) Downloads
Working Paper: Interest Rate Determination in the Interbank Market (2004) Downloads
Working Paper: Interest rate determination in the interbank market (2004) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:603.04

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