Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212038 
Authors: 
Year of Publication: 
2006
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 13/2006
Publisher: 
Bank of Finland, Helsinki
Abstract: 
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.
Subjects: 
Interbank market
interest rate volatility
central bank procedures
open market operations
JEL: 
E43
E44
E52
Persistent Identifier of the first edition: 
ISBN: 
952-462-284-X
Document Type: 
Working Paper

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