32 research outputs found
Monetary transmission right from the start: The (dis)connection netween the money market and the ECB's main refinancing rates
The relation between the ECB's main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. This paper investigates how money market rates respond to the new information revealed by MRO auctions. Our results confirm a stabilizing level relationship between the overnight rate Eonia and MRO rates before the financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes even exacerbated the disconnection of money market rates from the policy-intended interest rate level. These findings support the fixed rate full allotment policy introduced by the ECB as an unconventionalmeasure to re-stabilize banks' refinancing conditions. --Financial Crisis,Monetary transmission process,Central bank auctions,European Central Bank,Money markets
Monetary Transmission Right from the Start: The (Dis)Connection Between the Money Market and the ECBâs Main Refinancing Rates
The relation between the ECBâs main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. This paper investigates how money market rates respond to the new information revealed by MRO auctions. Our results confirm a stabilizing level relationship between the overnight rate Eonia and MRO rates before the financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes even exacerbated the disconnection of money market rates from the policy-intended interest rate level. These findings support the fixed rate full allotment policy introduced by the ECB as an unconventionalmeasure to re-stabilize banksâ refinancing conditions.Financial Crisis, Monetary transmission process, Central bank auctions, European Central Bank, Money markets
The effectiveness of monetary policy in steering money market rates during the recent financial crisis
The recent financial crisis deeply affected the money market yield curve and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates using two measures: first, the predictability of money market rates on the basis of monetary policy expectations, and second the impact of extraordinary central bank measures on money market rates. We find that market expectations about monetary policy are less relevant for money market rates up to 12 months after August 2007 compared to the pre-crisis period. At the same time, our results indicate that the ECBâs net increase in outstanding open market operations as of October 2008 accounts for at least a 100 basis point decline in Euribor rates. These findings show that central banks have effective tools at hand to conduct monetary policy in times of crises. JEL Classification: E43, E52, E58European Central Bank, financial crisis, monetary policy implementation, monetary transmission mechanism, money market
Monetary Transmission Right from the Start: The (Dis)Connection Between the Money Market and the ECBâs Main Refinancing Rates
The relation between the ECBâs main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. This paper investigates how money market rates respond to the new information revealed by MRO auctions. Our results confirm a stabilizing level relationship between the overnight rate Eonia and MRO rates before the financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes even exacerbated the disconnection of money market rates from the policy-intended interest rate level. These findings support the fixed rate full allotment policy introduced by the ECB as an unconventionalmeasure to re-stabilize banksâ refinancing conditions.Financial Crisis; Monetary transmission process; Central bank auctions; European Central Bank; Money markets
Monetary transmission right from the start: On the information content of the eurosystem's main refinancing operations
The Eurosystem's main refinancing operations (MRO) are key for the interbank money market and the monetary transmission process in the euro area. This paper investigates how money market rates respond to the information revealed by various aspects of an MRO auction outcome. Our results confirm that the level of MRO rates governed short-term money market rates before the financial crisis. Since the start of the financial crisis, however, the information content of MRO rates has changed. While the levels of MRO rates have lost much of their pre-crisis significance, the spread between the weighted average and the marginal MRO rate has become an important barometer for the actual situation in the money market during the crisis. --monetary policy implementation,central bank auctions,European Central Bank,money markets and financial crisis
Interest Rate Dynamics and Monetary Policy Implementation in Switzerland
The maturity of the operational target of monetary policy is a distinguishing feature of the SNB's operational framework of monetary policy. While most central banks use targets for the overnight rate to signal the policy-intended interest rate level, the SNB announces a target range for the three-month Libor. This paper investigates the working and the consequences of the SNB's unique operational framework for the behavior of Swiss money market rates before and during the financial crisis.Implementation of Monetary Policy, Operational Targets of Monetary Policy, Three-Month Rate Targeting, Financial Crisis
the (dis)connection between the money market and the ECBâs main refinancing rates
The relation between the ECBâs main refinancing (MRO) rates and the money
market is key for the monetary transmission process in the euro area. This
paper investigates how money market rates respond to the new information
revealed by MRO auctions. Our results confirm a stabilizing level relationship
between the overnight rate Eonia and MRO rates before the financial crisis.
Since the start of the financial crisis, however, we find that MRO auction
outcomes even exacerbated the disconnection of money market rates from the
policy-intended interest rate level. These findings support the fixed rate
full allotment policy introduced by the ECB as an unconventionalmeasure to re-
stabilize banksâ refinancing conditions
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Securities trading by banks and credit supply: Micro-evidence from the crisis
We analyze securities trading by banks during the crisis and the associated spillovers to the supply of credit. We use a proprietary data set that has the investments of banks at the security level for 2005â2012 in conjunction with the credit register from Germany. We find thatâduring the crisisâbanks with higher trading expertise (trading banks) increase their investments in securities, especially in those that had a larger price drop, with the strongest impact in low-rated and long-term securities. Moreover, trading banks reduce their credit supply, and the credit crunch is binding at the firm level. All of the effects are more pronounced for trading banks with higher capital levels. Finally, banks use central bank liquidity and government subsidies like public recapitalization and implicit guarantees mainly to support trading of securities. Overall, our results suggest an externality arising from fire sales in securities markets on credit supply via the trading behavior of banks
Monetary Transmission Right from the Start
The relation between the ECBâs main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. This paper investigates how money market rates respond to the new information revealed by MRO auctions. Our results confirm a stabilizing level relationship between the overnight rate Eonia and MRO rates before the financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes even exacerbated the disconnection of money market rates from the policy-intended interest rate level. These findings support the fixed rate full allotment policy introduced by the ECB as an unconventionalmeasure to re-stabilize banksâ refinancing conditions
Interest Rate Dynamics and Monetary Policy Implementation in Switzerland
The maturity of the operational target of monetary policy is a distinguishing feature of the SNB's operational framework of monetary policy. While most central banks use targets for the overnight rate to signal the policy-intended interest rate level, the SNB announces a target range for the three-month Libor. This paper investigates the working and the consequences of the SNB's unique operational framework for the behavior of Swiss money market rates before and during the financial crisis