Central Bank Refinancing, Interbank Markets, and the Hypothesis of Liquidity Hoarding: Evidence from a Euro-Area Banking System
40 Pages Posted: 6 Oct 2015
Date Written: October 5, 2015
This is the first paper to analyse the relationship between single banks’ positions vis-à-vis the central bank and the interbank market and to perform an extensive test of the liquidity hoarding hypothesis using micro data. According to the most critical version of the hypothesis, during the crisis, central banks have been ineffective because banks hoarded the liquidity injected rather than channelling it on to other banks and the real economy. The results show that in Italy during the 2007-2011 financial crisis, contrary to widespread conjecture, the liquidity injected by the Eurosystem was intermediated among banks and towards the economy.
Keywords: liquidity, financial crisis, central bank refinancing, interbank market
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