At the inception of economic and monetary union (EMU), an open question was whether execution of monetary policy by the Eurosystem could effectively stabilize liquidity and short-term interest rates. Potential problems could arise from the central bank’s limited knowledge of the new euro area...

We study the interbank markets for overnight loans of the major industrial countries, linking the behaviour of short-term interest rates to the operating procedures of these countries’ central banks. We find that many of the key behavioural features of US federal funds rates, on which previous...