On several occasions during the period 2001-2003, the European Central Bank (ECB) decided to deviate from its “neutral” benchmark allotment rule, with the effect of not alleviating a temporary liquidity shortage in the banking system. This is remarkable because it implied the possibility of...

This paper constructs an equilibrium model for the short-term money market, when the central bank provides liquidity via variable rate tenders. The relation between market rate of interest and liquidity is derived from a single bank’s profit maximisation problem in the interbank market, and...

This paper constructs an equilibrium model for the short-term money market, when the central bank provides liquidity via variable rate tenders.The relation between market rate of interest and liquidity is derived from a single bank's profit maximisation problem in the interbank market, and the...

This paper presents a general equilibrium model of the determination of equilibrium in the interbank market for overnight liquidity when the central bank uses fixed rate tenders in its liquidity provision. We consider three alternative liquidity policy rules. First, the central bank may provide...