Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246213 
Year of Publication: 
2021
Series/Report no.: 
ECB Occasional Paper No. 282
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper discusses commercial banks' demand for central bank reserves under two alternative monetary policy framework configurations, namely: (i) an interest rate corridor system with scarce liquidity, and (ii) a floor system with ample liquidity. It outlines the interaction between the monetary implementation framework used to steer short-term market interest rates and banks' demand for reserves. We find that by implementing a floor system, the Eurosystem has eliminated the opportunity costs of holding reserves and enabled banks to hold relatively large buffers of reserves compared with the corridor system. Additionally, the demand for reserves may have increased endogenously, as the environment of ample liquidity conditions has incentivised many banks to adapt their business models. In parallel, the demand for reserves has also increased for more exogenous reasons such as post-global financial crisis liquidity regulation and increased liquidity concentration. Our estimates indicate an increase, over recent years, in the level of excess liquidity required in the euro area to avoid a rise in short-term market rates. Moreover, the dependency on the adopted monetary policy instruments and the external environment highlights the increased uncertainty in estimating future levels of required reserves
Subjects: 
ECB
Eurosystem
central bank reserves
monetary policyimplementation
liquidity management
JEL: 
E41
E44
E50
E51
E58
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4836-4
Document Type: 
Research Report

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