Money market volatility: a simulation study

Arbeitspapier

This paper analyses different operational central bank policies and their impact on the behaviour of the money market interest rate. The model combines profit maximising behaviour by commercial banks with the central bank supplying the liquidity that keeps the market rate on target.It seems that frequent liquidity supplying operations represent an efficient tool to control money market rates.An averaging provision reduces the use of standing facilities and interest rates volatility in all days except for the last day of the maintenance period.Whenever banks have different maintenance horizons both the spikes in volatility and use of standing facilities disappear.The paper also compares two different liquidity supply policies and finds that the level of liquidity necessary to keep the rates on target depends on not only the aggregate but also assets values of individual banks.

Object Details

• ISBN: 952-462-284-X
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 13/2006

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Monetary Policy
• Subject: Interbank market ; interest rate volatility ; central bank procedures ; open market operations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kempa, Michal
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/212038
• Last update: 10.03.2025, 11:43 AM CET