Working Paper: CEPR ID: DP3090
Authors: Alessandro Prati; Leonardo Bartolini; Giuseppe Bertola
Abstract: We study the interbank markets for overnight loans of the major industrial countries, linking the behaviour of short-term interest rates to the operating procedures of these countries? central banks. We find that many of the key behavioural features of US federal funds rates, on which previous studies have focused, are not robust to changes in institutional details, along both cross-sectional and time-series dimensions of the data. Our results indicate that central banks? operating procedures and intervention styles play a crucial role in shaping empirical features of short-term interest rates? day-to-day behaviour in industrial countries.
Keywords: central bank operating procedures; interest rates; reserve requirements
JEL Codes: E43; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central banks' operating procedures (E58) | predictable patterns in mean rates (C22) |
| timing of reserve requirements (E52) | interest rate behavior (E43) |
| reserve requirements (E58) | interest rate volatility (E43) |
| liquidity management practices (G33) | volatility of interest rates (E43) |
| central banks' inclination to provide liquidity (E58) | behavior of short-term interest rates (E43) |
| willingness of central banks to offset liquidity shocks (E58) | volatility and rates on settlement days (G17) |