The Liquidity and Liquidity Distribution Effects in Emerging Markets: The Case of Jordan
IMF Working Papers, October 1, 2009
Source details
- Canonical URL
- The Liquidity and Liquidity Distribution Effects in Emerging Markets: The Case of Jordan
Other formats
Bibliographic details
- Authors: Jerome Vandenbussche, Stanley B Watt, Szabolcs Blazsek
- Published: October 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873757.001
Summary and research question
- Analyzes the determinants of daily changes in Jordan's interbank market overnight rate.
- Quantifies the classic liquidity effect.
- Uncovers a liquidity distribution effect on both sides of the market.
- Identifies the liquidity effect using the series of the central bank's daily forecast errors, following Carpenter and Demiralp (2006).
Key findings
- The magnitude of both the liquidity effect and the liquidity distribution effect is a decreasing and convex function of the level of excess reserves.
- The volatility of rate changes depends much more on the reserve surplus accumulated within a maintenance period than on the level of excess reserves.
- Empirical identification relies on central bank daily forecast errors.
Policy-relevant implications
- Monitoring and managing reserve surpluses within maintenance periods is critical for controlling volatility of overnight rates.
- Understanding distributional effects on both sides of the market complements classic liquidity-effect analysis for emerging market monetary operations.
- Use of central bank forecast-error series can aid in isolating liquidity shocks in operational analysis of monetary policy implementation.
Subject classification and keywords
- Subject: Banking, Commercial banks, Excess liquidity, Liquidity, Open market operations
- Keywords: excess reserves, liquidity effect, overnight rate, WP