Abstract

http://ssrn.com/abstract=1310621
 
 

Citations (6)



 
 

Footnotes (26)



 


 



What Explains the Spread Between the Euro Overnight Rate and the ECB's Policy Rate?


Tobias Linzert


European Central Bank (ECB); Institute for the Study of Labor (IZA)

Sandra Schmidt


Centre for European Economic Research (ZEW)

December 3, 2008

ECB Working Paper No. 983

Abstract:     
We employ a time series econometric framework to explore the structural determinants of the spread between the European Overnight Rate and the ECB's Policy Rate (EONIA spread) aiming to explain the widening of the EONIA spread from mid-2004 to mid-2006. In particular, we estimate a model on the EONIA spread since the introduction of the new operational framework in March 2004 until August 2006. We show that the increase in the EONIA spread can for the largest part be explained by the current liquidity deficit. Moreover, tight liquidity conditions as well as an increase in banks' liquidity uncertainty lead to a significant upward pressure on the spread. The ECB's liquidity policy only reduces the spread if a loose policy is conducted during the last week of a maintenance period. Interestingly, interest rate expectations have not been found to have an important influence.

Number of Pages in PDF File: 40

Keywords: Overnight Market Rate (EONIA), Interest Rate Determination, Monetary Policy Implementation, Operational Framework

JEL Classification: E43, E52, C22

working papers series





Download This Paper

Date posted: December 23, 2008  

Suggested Citation

Linzert, Tobias and Schmidt, Sandra, What Explains the Spread Between the Euro Overnight Rate and the ECB's Policy Rate? (December 3, 2008). ECB Working Paper No. 983. Available at SSRN: http://ssrn.com/abstract=1310621

Contact Information

Tobias Linzert (Contact Author)
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Sandra Schmidt
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
Feedback to SSRN


Paper statistics
Abstract Views: 353
Downloads: 61
Download Rank: 122,564
Citations:  6
Footnotes:  26

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.328 seconds