Money market volatility : a simulation study

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Title: Money market volatility : a simulation study
ISBN: 952-462-264-X
Author: Kempa, Michal
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2006
Series number: 13/2006
Year of publication: 2006
Publication date: 1.5.2006
Pages: 39 s.
Keywords: rahamarkkinat; volatiliteetti; korot; keskuspankit; markkinaoperaatiot; pankkitoiminta; likviditeetti; vähimmäisvarantojärjestelmä; varannot;
JEL: E43; E44; E52
Abstract: This paper analyses different operational central bank policies and their impact on the behaviour of the money market interest rate. The model combines profit maximising behaviour by commercial banks with the central bank supplying the liquidity that keeps the market rate on target.It seems that frequent liquidity supplying operations represent an efficient tool to control money market rates.An averaging provision reduces the use of standing facilities and interest rates volatility in all days except for the last day of the maintenance period.Whenever banks have different maintenance horizons both the spikes in volatility and use of standing facilities disappear.The paper also compares two different liquidity supply policies and finds that the level of liquidity necessary to keep the rates on target depends on not only the aggregate but also assets values of individual banks.Key words: Interbank market, interest rate volatility, central bank procedures, open market operations JEL classification numbers: E43, E44, E52
Rights: https://helda.helsinki.fi/bof/copyright


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