Central bank tools for steering short-term interest rates

Renaud Beaupain and Yann Braouezec
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Yann Braouezec: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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Abstract: In a context marked by manipulation attempts and by declining money market activity, this paper takes a new look at reference interest rates. More specifically, we discuss the operational tools used by central banks to steer those rates and we compare the operational frameworks of the Federal Reserve in the United States and of the European Central Bank in the euro area. We show how the interest rate corridor has provided a ceiling and a floor to the unsecured overnight interest rate in Europe and how the corridor implemented by the Federal Reserve at the peak of the financial crisis was subsequently adjusted to offer an effective floor to its interbank market, notably through the implementation of an overnight reverse repurchase agreements program.

Date: 2017
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Published in Reflets et Perspectives de la vie économique, 2017, LVI (4), pp.113 - 123. ⟨10.3917/rpve.564.0113⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02985950

DOI: 10.3917/rpve.564.0113

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