Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154319
Authors: 
Garcia-de-Andoain, Carlos
Heider, Florian
Hoerova, Marie
Manganelli, Simone
Year of Publication: 
2016
Series/Report no.: 
ECB Working Paper 1886
Abstract: 
This paper investigates the impact of ample liquidity provision by the European Central Bank on the functioning of the overnight unsecured interbank market from 2008 to 2014. We use novel data on interbank transactions derived from TARGET2, the main euro area payment system. To identify exogenous shocks to central bank liquidity, we exploit the timing of ECB liquidity operations and use a simple structural vector auto-regression framework. We argue that the ECB acted as a de-facto lender-of-last-resort to the euro area banking system and identify two main effects of central bank liquidity provision on interbank markets. First, central bank liquidity replaces the demand for liquidity in the interbank market, especially during the financial crisis (2008-2010). Second, it increases the supply of liquidity in the interbank market in stressed countries (Greece, Italy and Spain) during the sovereign debt crisis (2011-2013).
Subjects: 
central bank policy
financial crisis
interbank markets
lender-of-last-resort
sovereign debt crisis
JEL: 
E58
F36
G01
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2005-6
Document Type: 
Working Paper

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