Paper #474

Title:

The daily market for funds in Europe: Has something changed with the EMU?

Authors:

Gabriel Pérez Quirós and Hugo Rodríguez

Date:

July 2000

Abstract:

This paper presents evidence that the existence of deposit and lending facilities combined with an averaging provision for the reserve requirement are powerful tools to stabilize the overnight rate. We reach this conclusion by comparing the behavior of this rate in Germany before and after the start of Stage III of the EMU. The analysis of the German experience is useful because it allows us to isolate the effects on the overnight rate of these particular instruments of monetary policy. To show that this outcome is a general conclusion and not a particular result of the German market, we develop a theoretical model of reserve management which is able to reproduce our empirical findings.

Keywords:

Overnight rates, reserve demand, Martingale hypothesis

JEL codes:

E44, E52

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of Money, Credit and Banking, 38/1, 91-118, 2001

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