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Type Journal Article
Scope Discipline-based scholarship
Title Optimal allotment policy in central bank open market operations
Organization Unit
Authors
  • Christian Ewerhart
  • Nuno Cassola
  • Steen Ejerskov
  • Natacha Valla
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title The European journal of finance
Publisher Taylor & Francis
Geographical Reach international
ISSN 1351-847X
Volume 15
Number 4
Page Range 405 - 420
Date 2009
Abstract Text This paper derives a central bank's optimal liquidity supply towards a money market with an unrestricted lending facility. We show that when the effect of liquidity on market rates is not too small, and the monetary authority cares for both interest rates and liquidity conditions, then the optimal allotment policy may entail a discontinuous reaction to initial conditions. In particular, the model predicts a threshold level of liquidity below which the central bank will not bail out the banking system. An estimation of the liquidity effect for the euro area suggests that the discontinuity might have contributed to the Eurosystem's tight response to occurrences of underbidding during the period June 2000 through March 2004.
Digital Object Identifier 10.1080/13518470802560857
Other Identification Number doi:10.1080/13518470802560857
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Additional Information "This is an electronic version of an article published in [Optimal allotment policy in central bank open market operations Authors: Christian Ewerhart; Nuno Cassola; Steen Ejerskov; Natacha Valla. The European Journal of Finance, Volume 15, Issue 4 June 2009 , pages 405 - 420. European Journal of Finance is available online at: http://www.informaworld.com/smpp/content~db=all?content=10.1080/13518470802560857&waited=0" Es existiert eine ECB-Version unter folgendem link: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp295.pdf