Abstract

http://ssrn.com/abstract=556070
 
 

References (12)



 
 

Citations (2)



 


 



Liquidity, Information, and the Overnight Rate


Christian Ewerhart


University of Zurich - Department of Economics

Nuno Cassola


European Central Bank (ECB)

Steen Ejerskov


European Central Bank (ECB)

Natacha Valla


Banque de France; European Central Bank (ECB)

July 2004

ECB Working Paper No. 378; IEER Working Paper No. 186

Abstract:     
We model the interbank market for overnight credit with heterogeneous banks and asymmetric information. An unsophisticated bank just trades to compensate its liquidity imbalance, while a sophisticated bank will exploit 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 generate an 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.

Number of Pages in PDF File: 38

Keywords: Liquidity effect, asymmetric information, monetary policy implementation

JEL Classification: G14, G21, E52

working papers series


Download This Paper

Date posted: June 14, 2004  

Suggested Citation

Ewerhart, Christian and Cassola, Nuno and Ejerskov, Steen and Valla, Natacha, Liquidity, Information, and the Overnight Rate (July 2004). ECB Working Paper No. 378; IEER Working Paper No. 186. Available at SSRN: http://ssrn.com/abstract=556070

Contact Information

Christian Ewerhart (Contact Author)
University of Zurich - Department of Economics ( email )
Winterthurerstrasse 30
CH-8006 Zurich
Switzerland
Nuno Cassola
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)
Steen Ejerskov
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
Natacha Valla
Banque de France ( email )
31 rue Croix des Petits Champs
75049 Paris Cedex 01
France
+33 1 42922756 (Phone)
+33 1 42926296 (Fax)
HOME PAGE: http://www.iue.it/Personal/Researchers/valla/
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
+49 13440 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 811
Downloads: 127
Download Rank: 130,337
References:  12
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.234 seconds