IMF Working Papers

Relationship Between Short-Term Interest Rates and Excess Reserves: A Logistic Approach

By Romain M Veyrune, Guido della Valle, Shaoyu Guo

April 6, 2018

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Romain M Veyrune, Guido della Valle, and Shaoyu Guo. Relationship Between Short-Term Interest Rates and Excess Reserves: A Logistic Approach, (USA: International Monetary Fund, 2018) accessed December 5, 2024

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Summary

This paper models the relationship between short-term rates and excess reserves in an interest rate corridor as a logistic function estimated for the Eurosystem. The estimate helps to identify conditions in which short-term rates become unanchored, that is, they move away from the policy rates and become more volatile within the interest rate corridor defined by the interest rates of the central bank’s standing facilities. These conditions are attributed to coordination failures among counterparties at open market operations under fixed-rate and full-allotment procedures in the context of segmented markets. A model of the functioning of segmented markets describes how “un-anchoring” takes place when counterparties pursue bidding strategies optimal from an individual perspective but sub-optimal from an aggregate perspective.

Subject: Banking, Deposit rates, Interest rate corridor, Short term interest rates, Standing facilities

Keywords: Facility rate, Money market, Short-term rate, WP

Publication Details

  • Pages:

    37

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/080

  • Stock No:

    WPIEA2018080

  • ISBN:

    9781484350690

  • ISSN:

    1018-5941