Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153716
Authors: 
Eisenschmidt, Jens
Holthausen, Cornelia
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1282
Abstract: 
This paper studies the relationship between the size of the banking sector’s refinancing needs vis-à-vis the central bank and auction rates in its open market operations in times of financial market stress. In a theoretical model, it is found that marginal rates at central bank auctions may increase if the share of troubled banks becomes too high relative to the total size of the banking sector’s refinancing needs. An empirical analysis then aims at determining the size of open market operations needed to absorb large stress levels in interbank money markets and hence contain central bank auction rates. Finally, the paper analyses effects of the composition of open market operations of different maturities on auction rates. It is found that a too high share of longer-term refinancing induces a rise in auction rates which is undesirable. Therefore, the analysis suggests that there is a lower bound for the amount of liquidity provided through short-term operations.
Subjects: 
Central Bank
financial crisis
money market
Open market operations
JEL: 
G01
G10
G21
Document Type: 
Working Paper

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