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Title:Monetary transmission right from the start: The (dis)connection between the money market and the ECB's main refinancing rates PDF Logo
Authors:Abbassi, Puriya
Nautz, Dieter
Issue Date:2010
Series/Report no.:SFB 649 discussion paper 2010,019
Abstract:The relation between the ECB's main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. This paper investigates how money market rates respond to the new information revealed by MRO auctions. Our results confirm a stabilizing level relationship between the overnight rate Eonia and MRO rates before the financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes even exacerbated the disconnection of money market rates from the policy-intended interest rate level. These findings support the fixed rate full allotment policy introduced by the ECB as an unconventionalmeasure to re-stabilize banks' refinancing conditions.
Subjects:Financial Crisis
Monetary transmission process
Central bank auctions
European Central Bank
Money markets
JEL:E43
E52
E58
D44
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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