The 'new normal' during normal times - liquidity regulation and conventional monetary policy
Iman Lelyveld and
DNB Working Papers from Netherlands Central Bank, Research Department
We analyze the impact of a requirement similar to the Basel III Liquidity Coverage Ratio (LCR) on conventional monetary policy implementation. Combining unique data sets of Dutch banks from 2002 to 2005, we find that the introduction of the LCR impacts banks' behaviour in open market operations. After the introduction of the LCR, banks bid for higher volumes and pay higher interest rates for central bank funds. In line with theory, banks reduce their reliance on overnight and short term unsecured funding. We do not observe a worsening of collateral quality pledged in open market operations. Thus, to correctly anticipate an open market operation's effect on interest rates, monetary policy requires central banks to consider not only the size of the operation, but also how it impacts banks' liquidity management and compliance with the LCR.
Keywords: Liquidity regulation; monetary policy implementation; financial intermediation; banks; open market operations (search for similar items in EconPapers)
JEL-codes: E42 G18 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://www.dnb.nl/en/binaries/Working%20paper%20No.%20703_tcm47-391514.pdf [301 Moved Permanently]--> https://www.dnb.nl/en/binaries/working%20paper%20no.%20703_tcm47-391514.pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:703
Access Statistics for this paper
More papers in DNB Working Papers from Netherlands Central Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Richard Heuver ().