Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153303
Authors: 
Cassola, Nuno
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 869
Abstract: 
The theory of liquidity management under uncertainty predicts that, under certain conditions, commercial banks will accumulate minimum reserve requirements linearly over the reserve maintenance period. This prediction is empirically tested using daily data (from March 2004 until February 2007) on the current accounts and minimum reserve requirements of a panel of 79 commercial banks from the euro area. The linear accumulation hypothesis is not rejected by the data with the exception of small banks which build-up excess reserves. The empirical analysis suggest that idiosyncratic liquidity uncertainty is much higher than aggregate liquidity uncertainty. Nevertheless, on the penultimate day in the reserve maintenance period, the inverse demand schedule of the representative bank is relatively flat around the middle of the interest rate corridor set by the standing facilities. This suggests that liquidity e¤ects on the overnight inter-bank rate should be very muted on this day. Our calibration exercise suggests that the probability of an individual bank's daily overdraft in the euro area is very low (less than 1:0%). This is conrmed by the analysis of the daily recourses to the marginal lending facility by the panel banks.
Subjects: 
liquidity management
monetary policy implementation
Panel data
Rate corridor
reserve requirements
JEL: 
C23
E4
E5
G2
Document Type: 
Working Paper

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