What is it about?
In 2008 the European Central Bank added a new quantitative policy strategy to its traditional control of the interest rates. This new non-standard policy, sometimes called “enhanced credit support”, consists of fully satisfying the demand for liquidity of banks, with the European Central Bank deciding only the timing and characteristics of its interventions. This study analyses econometrically the formation of interbank interest rates, the supply and demand of liquidity and simulates the results on ECB’s interventions
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Why is it important?
The econometric analysis is important because considers the consistency between the types of ECB interventions and the bank demand for liquidity. The Bank demand analyses various ECB’s operations separately, and includes all relevant constraints explicitly. The same aspects regards interbank market interest rates. A simulation allows measuring how ECB’s non-standard monetary policy was effective.
Perspectives
This article shows how econometric analysis can take into account all institutional constraints, and explains the relevance of measuring the effects of particular monetary policies. Is also explains why in general ECB’s made a good job in 2008-2013. Many estimations presented here are also useful in forecasting interest rates.
Giovanni Verga
Universita degli Studi di Parma
Read the Original
This page is a summary of: The European Central Bank Quantitative Policy and Its Consistency with the Demand for Liquidity, Annals of the Alexandru Ioan Cuza University - Economics, January 2015, De Gruyter,
DOI: 10.1515/aicue-2015-0029.
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