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Corridor System and Interest Rates: Volatility and Asymmetry

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  • JIHO LEE

Abstract

The corridor system in its current form is believed to reduce the volatility of overnight interest rates and to eliminate any chance of persistent upward or downward bias. The model presented here serves to highlight two main findings: one is that a central bank can further reduce the volatility of overnight interest rates by allowing banks some flexibility to meet their reserve targets within a small range, as observed in the UK data. The second is that a seemingly symmetric corridor may be asymmetric in practice due to several distortions, as the UK and euro area data suggest.

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  • Jiho Lee, 2016. "Corridor System and Interest Rates: Volatility and Asymmetry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(8), pages 1815-1838, December.
    • Handle: RePEc:wly:jmoncb:v:48:y:2016:i:8:p:1815-1838
    DOI: 10.1111/jmcb.12364
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    References listed on IDEAS

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    1. Whitesell, William, 2006. "Interest rate corridors and reserves," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1177-1195, September.
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    2. Buchholz, Manuel & Schmidt, Kirsten & Tonzer, Lena, 2020. "Do conventional monetary policy instruments matter in unconventional times?," Journal of Banking & Finance, Elsevier, vol. 118(C).
    3. Popoyan, Lilit & Napoletano, Mauro & Roventini, Andrea, 2020. "Winter is possibly not coming: Mitigating financial instability in an agent-based model with interbank market," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
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    5. repec:spo:wpmain:info:hdl:2441/1j4v8sl4fc9a49ankmnhv6bb6a is not listed on IDEAS
    6. Miklos Vari, 2020. "Monetary Policy Transmission with Interbank Market Fragmentation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 409-440, March.

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