How does the ECB allot liquidity in its weekly main refinancing operations? A look at the empirical evidence

This model provides a simple weekly model of the regular supply of liquidity in the euro area, with a view to understanding the functioning of the euro area money market. The main result of the analysis is that liquidity has normally been provided by the ECB in a neutral and smooth manner, but also that there has been attempt, albeit very limited, to correct deviations of the overnight rate from the main refinancing rate. Moreover, the paper finds that liquidity has affected the overnight interest rate to a significant extent only after the last main refinancing operation of the maintenance period, when it is not possible for the ECB to adjust liquidity imbalances except by making recourse to fine-tuning operations. JEL Classification: E52, E43, G21Bank reserves, liquidity effect, liquidity policy, martingale hypothesis, monetary policy

Optimal allotment policy in the Eurosystem's main refinancing operations

On several occasions during the period 2001-2003, the European Central Bank (ECB) decided to deviate from its “neutral” benchmark allotment rule, with the effect of not alleviating a temporary liquidity shortage in the banking system. This is remarkable because it implied the possibility of short-term interest rates raising significantly above the main policy rate. In the present paper, we show that when the monetary authority cares for both liquidity and interest rate conditions, the optimal allotment policy may entail a discontinuous reaction to initial conditions. More precisely, we prove that there is a threshold level for the accumulated aggregate liquidity position in the banking system prior to the last operation in a given maintenance period, so that the benchmark allotment is optimal whenever liquidity conditions are above the threshold, and a tight allotment is optimal whenever liquidity conditions are below the threshold. JEL Classification: E43, E52euro, monetary policy instruments, operational framework, refinancing operations-

Sporadic manipulation in money markets with central bank standing facilities

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, E52corridor system, manipulation, money market

Magnetic tracking of gastrointestinal motility.

OBJECTIVE: Capsule-based methods for assessment of gastrointestinal (GI) motility have seen great improvements in recent decades. The most recent development is the electromagnetic Motilis 3D-Transit system (3D-Transit). The aim of this paper is to review and discuss the development and technical properties of magnetic tracking of GI motility. APPROACH: We performed a comprehensive literature review on magnetic tracking in GI research. MAIN RESULTS: The Motility Tracking System was the first capsule based magnetic system to be used in GI motility research. However, the potential of the system was hampered by its stationary and hospitalizing nature. This led to the development of the electromagnetic Motilis 3D-Transit system. The 3D-Transit system is a portable system that allows for assessment of both whole gut and regional transit times and contraction patterns in a fully ambulatory setting in the patients' home environment with only minor restrictions on movements. The spatiotemporal resolution of 3D-Transit allows assessment of segmental colonic transit times and permits an analysis of gastric and colonic movements with a degree of detail unrivalled by other ambulatory methods, such as the Wireless Motility Capsule. Recently, robust normative data on 3D-Transit have been published. SIGNIFICANCE: This review provides a current perspective on the use of capsule-based magnetic tracking systems in GI research and how they represent a potentially valuable clinical resource for GI physicians and in GI research

Optimal Allotment Policy in Central Bank Open Market Operations

"This paper derives a central bank’s optimal liquidity supply towards a money market with an unrestricted lending facility. We show that when the effect ofnliquidity on market rates is not too small, and the monetary authority cares for both interest rates and liquidity conditions, then the optimal allotment policy may entail a discontinuous reaction to initial conditions. In particular, the model predicts a threshold level of liquidity below which the central banknwill not bail out the banking system. An estimation of the liquidity effect for the euro area suggests that the discontinuity might have contributed to the Eurosystem’s tight response to occurrences of underbidding during the period June 2000 through March 2004.

Liquidity, Information, and the Overnight Rate

We model the interbank market for overnight credit with heterogeneous banks and asymmetric information. An unsophisticated bank justntrades to compensate its liquidity imbalance, while a sophisticated bank willnexploit its private information about the liquidity situation in the market. It is shown that with positive probability, the liquidity effect (Hamilton, 1997) is reversed, i.e., a liquidity drainage from the banking system may generatenan overall decrease in the market rate. The phenomenon does not disappear when the number of banks increases. We also show that private information mitigates the effect of an unexpected liquidity shock on the market rate, suggesting a conservative information policy from a central bank perspective

Manipulation in money markets

Interest rate derivatives are among the most actively traded financial instruments in the main currency areas. With values of positions reacting immediately to the underlying index of daily interbank rates, manipulation has become an increasing challenge for the operational implementation of monetary policy. To address this issue, we study a microstructure model in which a commercial bank may have strategic recourse to central bank standing facilities. We characterise an equilibrium in which market rates will be manipulated with strictly positive probability. Our findings have an immediate bearing on recent developments in the Sterling and Euro money markets

Optimal allotment policy in central bank open market operations

This paper derives a central bank's optimal liquidity supply towards a money market with an unrestricted lending facility. We show that when the effect of liquidity on market rates is not too small, and the monetary authority cares for both interest rates and liquidity conditions, then the optimal allotment policy may entail a discontinuous reaction to initial conditions. In particular, the model predicts a threshold level of liquidity below which the central bank will not bail out the banking system. An estimation of the liquidity effect for the euro area suggests that the discontinuity might have contributed to the Eurosystem's tight response to occurrences of underbidding during the period June 2000 through March 2004