Monitoring the Unsecured Interbank Money Market Using Target2 Data

33 Pages Posted: 1 Nov 2011

See all articles by Ronald Heijmans

Ronald Heijmans

De Nederlandsche Bank

Richard Heuver

De Nederlandsche Bank

Daniëlle Walraven

affiliation not provided to SSRN

Date Written: October 1, 2010

Abstract

We investigate the euro unsecured interbank money market during the current financial crisis. To identify the loans traded in this market and settled in TARGET2, we extend the algorithm developed by Furfine (1999) and adapt it to the European interbank loan market with maturity up to one year. This paper solves the problem of systematic errors which occur when you only look at overnight loans (as the Furfine algorithm does). These errors especially occur in times of (very) low interest rates. The algorithm allows us to track the actual interest rates rather than quoted interest rates on liquidity trading by participants of the Dutch part of the euro large value payment system (TARGET2-NL). The algorithm enables us to constitute the Dutch part of the EONIA, making it possible to compare the interest rates developments in the Dutch market to the European average ones. Based on the new algorithm, we develop a policy tool to monitor the interbank money market, both at macro level (whole market) and individual bank level (Money Market Monitoring Dashboard).

Keywords: payment systems, financial stability, experiment, decision making

JEL Classification: E42, E44, G01

Suggested Citation

Heijmans, Ronald and Heuver, Richard and Walraven, Daniëlle, Monitoring the Unsecured Interbank Money Market Using Target2 Data (October 1, 2010). De Nederlandsche Bank Working Paper No. 276, Available at SSRN: https://ssrn.com/abstract=1950553 or http://dx.doi.org/10.2139/ssrn.1950553

Ronald Heijmans (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Richard Heuver

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Daniëlle Walraven

affiliation not provided to SSRN ( email )

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