Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212088 
Authors: 
Year of Publication: 
2007
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 30/2007
Publisher: 
Bank of Finland, Helsinki
Abstract: 
In this paper I analyse the determinants of commercial banks' demand for reserves in the interbank market. I first document the pattern in the Eurosystem, where banks deviate from the required reserves balance at the start of the maintenance period only to meet the requirements closer to the settlement day. Using my model I show that this behaviour can be explained by certain trade-related frictions and costs. Examples include potential extra expenses tied to large transactions or the asymmetry between the cost of borrowing and profits from lending. I also find that borrowing decisions can be largely unaffected by current liquidity, which has important implications for the implementation of central bank monetary policy: in order to influence the level of interest rates, the central bank must focus on controlling market expectations.
Subjects: 
money markets
EONIA
liquidity effect
JEL: 
E52
E58
E43
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-409-1
Document Type: 
Working Paper

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