Sporadic Manipulation in Money Markets with Central Bank Standing Facilities

36 Pages Posted: 13 Dec 2004

See all articles by Christian Ewerhart

Christian Ewerhart

University of Zurich, Department of Economics

Nuno Cassola

University of Milan Bicocca - CefES; University of Lisbon - CEMAPRE

Steen Ejerskov

European Central Bank (ECB)

Natacha Valla

European Union - European Investment Bank; European Central Bank (ECB); Banque de France

Date Written: October 2004

Abstract

In certain market environments, a large investor may benefit from building up a futures position first and trading subsequently in the spot market (Kumar and Seppi, 1992). The present paper identifies a variation of this type of manipulation that might occur in money markets with an interest rate corridor. We show that manipulation involving the use of central bank facilities would be observable only sporadically. The probability of manipulation decreases when the central bank uses an active liquidity management. Manipulation can also be reduced by widening the interest rate corridor.

Keywords: Money market, corridor system, manipulation

JEL Classification: D84, E52

Suggested Citation

Ewerhart, Christian and Cassola, Nuno and Ejerskov, Steen and Valla, Natacha, Sporadic Manipulation in Money Markets with Central Bank Standing Facilities (October 2004). Available at SSRN: https://ssrn.com/abstract=587267

Christian Ewerhart (Contact Author)

University of Zurich, Department of Economics ( email )

Schoenberggasse 1
Zurich, CH-8001
Switzerland

Nuno Cassola

University of Milan Bicocca - CefES ( email )

Milan
Italy

University of Lisbon - CEMAPRE ( email )

Lisbon
Portugal

Steen Ejerskov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Natacha Valla

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 13440 (Phone)

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/

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