Interest Rate Corridor, Liquidity Management and the Overnight Spread

Hande Kucuk (), Pınar Özbay Özlü, Ismail Talasli (), Deren Ünalmış and Canan Yuksel ()

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: Recently, massive global liquidity has compelled many emerging market economies to change their monetary policy frameworks in order to address the financial stability challenges posed by volatile capital flows. In this respect, as of the second half of 2010, the Central Bank of the Republic of Turkey (CBRT) has developed additional policy instruments to support the adoption of financial stability as a complementary objective to price stability. Liquidity management has actively been used in conjunction with a wide interest rate corridor to smooth excessive volatility in shortterm capital inflows. As a result, the spread between the Borsa Istanbul overnight repo interest rate and the CBRT average funding rate (overnight spread) has become wider and more volatile. We analyze the determinants of the overnight spread using data from both the traditional and the new monetary policy episodes and empirically document that this spread has recently been influenced by various factors which are directly or closely related to the liquidity policy of the CBRT.

Keywords: Overnight interest rate; liquidity policy; monetary policy; operational framework (search for similar items in EconPapers)
JEL-codes: C22 E43 E52 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ara, nep-cba, nep-cwa, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: INTEREST RATE CORRIDOR, LIQUIDITY MANAGEMENT, AND THE OVERNIGHT SPREAD (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1402

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