Sporadic manipulation in money markets with central bank standing facilities

In certain market environments, a large investor may benefit from building up a futures position first and trading subsequently in the spot market (Kumar and Seppi, 1992). The present paper identifies a variation of this type of manipulation that might occur in money markets with an interest rate corridor. We show that manipulation involving the use of central bank facilities would be observable only sporadically. The probability of manipulation decreases when the central bank uses an active liquidity management. Manipulation can also be reduced by widening the interest rate corridor.

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Year of publication:	2004
Authors:	Ewerhart, Christian ; Cassola, Nuno ; Ejerskov, Steen ; Valla, Natacha
Publisher:	European Central Bank
Subject:	Geldpolitik \| Monetary Policy \| Zentralbank \| Central Bank

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Extent:	1034240 bytes 34 p. application/pdf
Series:	Working paper series / European Central Bank ; 399
Type of publication:	Book / Working Paper
Language:	English
Classification:	D84 - Expectations; Speculations ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; Currency. Monetary policy ; Individual Working Papers, Preprints
Source:	ArchiDok