Sporadic manipulation in money markets with central bank standing facilities

Nuno Cassola, Steen Ejerskov, Christian Ewerhart and Natacha Valla

No 399, Working Paper Series from European Central Bank

Abstract: In certain market environments, a large investor may benefit from building up a futures position first and trading subsequently in the spot market (Kumar and Seppi, 1992). The present paper identifies a variation of this type of manipulation that might occur in money markets with an interest rate corridor. We show that manipulation involving the use of central bank facilities would be observable only sporadically. The probability of manipulation decreases when the central bank uses an active liquidity management. Manipulation can also be reduced by widening the interest rate corridor. JEL Classification: D84, E52

Keywords: corridor system; manipulation; money market (search for similar items in EconPapers)
Date: 2004-10
Note: 334845
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2004399

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