UID:
edoccha_9959310613402883
Format:
1 online resource (38 pages)
ISBN:
1-4843-5197-5
,
1-4843-5200-9
Series Statement:
IMF Working Papers
Content:
This paper models the relationship between short-term rates and excess reserves in an interest rate corridor as a logistic function estimated for the Eurosystem. The estimate helps to identify conditions in which short-term rates become unanchored, that is, they move away from the policy rates and become more volatile within the interest rate corridor defined by the interest rates of the central bank’s standing facilities. These conditions are attributed to coordination failures among counterparties at open market operations under fixed-rate and full-allotment procedures in the context of segmented markets. A model of the functioning of segmented markets describes how “un-anchoring” takes place when counterparties pursue bidding strategies optimal from an individual perspective but sub-optimal from an aggregate perspective.
Note:
Cover -- Contents -- Abstract -- I. Introduction -- II. Steering Short-Term Rates in an Interest Rate Corridor -- A. General Considerations -- B. Literature Review -- III. Logistic Modeling of the Interest Rate Corridor -- A. Stylized Representation of the Demand for Excess Reserves -- B. Logistic Function Parameters -- C. Model for the Pricing of Excess Reserves in the Interbank Market -- IV. Empirical Results -- A. Estimate of the Logistic Function from 1999 to 2018 -- B. Impact of Market Segmentation on the Relationship Between Short-Term Rates and Excess Reserves -- V. Conclusion -- Tables -- 1. Estimates of the logistic function-different data frequency -- 2. Estimates of the logistic function-October 2008 to December 2011 versus January 2012 to February 2018 -- Figures -- 1. Stylized logistic representation of short-term rates in an interest rate corridor -- 2. Examples of logistic function parameterization -- 3. Examples of logistic function first derivative parameterization -- 4. Examples of logistic function second derivative parameterization -- 5. Policy rates, EONIA, and excess reserves -- 6. Estimation of the logistic function-January 1999 to February 2018 -- 7. First derivative of the logistic function-January 1999 to February 2018 -- 8. Second derivative of the logistic function-January 1999 to February 2018 -- 9. Absolute deviation between predicted and actual short-term rates -- 10. Estimation of the logistic function-October 2008 to December 2011 versus January 2012 to February 2018 -- 11. First derivative of the logistic function-October 2008 to December 2011 versus January 2012 to February 2018 -- 12. Second derivative of the logistic function-October 2008 to December 2011 versus January 2012 to February 2018 -- 13. Average cost of short-term borrowing.
Additional Edition:
ISBN 1-4843-5069-3
Language:
English
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