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Sporadic manipulation in money markets with central bank standing facilities

Author

Listed:
  • Cassola, Nuno
  • Ejerskov, Steen
  • Ewerhart, Christian
  • Valla, Natacha

Abstract

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. JEL Classification: D84, E52

Suggested Citation

  • Cassola, Nuno & Ejerskov, Steen & Ewerhart, Christian & Valla, Natacha, 2004. "Sporadic manipulation in money markets with central bank standing facilities," Working Paper Series 399, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2004399
    Note: 334845
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp399.pdf
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    References listed on IDEAS

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    Cited by:

    1. International Monetary Fund, 2008. "Euro Area Policies: Selected Issues," IMF Staff Country Reports 2008/263, International Monetary Fund.
    2. Asif Mahmood, 2016. "Transmission of Volatility of Money Market Overnight Repo Rate along the Yield Curve in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 1-18.

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    More about this item

    Keywords

    corridor system; manipulation; money market;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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