IDEAS home Printed from https://ideas.repec.org/p/ice/wpaper/wp79.html
   My bibliography  Save this paper

The Central Bank of Iceland's liquidity management system

Author

Listed:
  • Ragnheiður Jónsdóttir

Abstract

This paper aims to answer the question of what kind of liquidity management system would be optimal for Iceland with respect to two important considerations. One is the current environment of surplus reserves and the other is Iceland's specific character of being a very small, open economy with its own currency. The theory behind monetary policy implementation is discussed as well as the various origins of surplus reserves, their characteristics and implications for the conduct of monetary policy. The reasons for the steep accumulation of surplus reserves in the Icelandic banking system are considered and fluctuations in reserves are found likely to persist in a small, open economy, not least one with a managed float. Four different types of liquidity management systems at central banks are discussed in turn and the examples of Sweden, Norway and Denmark considered in that context. Finally, some conclusions are provided on the optimal system for Iceland.

Suggested Citation

  • Ragnheiður Jónsdóttir, 2019. "The Central Bank of Iceland's liquidity management system," Economics wp79, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp79
    as

    Download full text from publisher

    File URL: https://www.cb.is/library/Skraarsafn---EN/Working-Papers/Working_Paper_79
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Whitesell, William, 2006. "Interest rate corridors and reserves," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1177-1195, September.
    2. Clews, Roger & Salmon, Chris & Weeken, Olaf, 2010. "The Bank's money market framework," Bank of England Quarterly Bulletin, Bank of England, vol. 50(4), pages 292-301.
    3. Brei, Michael & Moreno, Ramon, 2019. "Reserve requirements and capital flows in Latin America," Journal of International Money and Finance, Elsevier, vol. 99(C).
    4. Mr. Simon T Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 2011/036, International Monetary Fund.
    5. Garreth Rule, 2015. "Understanding the central bank balance sheet," Handbooks, Centre for Central Banking Studies, Bank of England, number 32, April.
    6. Mervyn King, 1994. "Monetary policy in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 109-128, August.
    7. Rebecca McCaughrin & Mr. Simon T Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks: Principles and Policies," IMF Working Papers 2008/222, International Monetary Fund.
    8. Garreth Rule, 2012. "Collateral management in central bank policy operations," Handbooks, Centre for Central Banking Studies, Bank of England, number 31, April.
    9. Simon T Gray, 2006. "Central bank management of surplus liquidity," Lectures, Centre for Central Banking Studies, Bank of England, edition 1, number 6, April.
    10. Todd Keister & Antoine Martin & James J. McAndrews, 2008. "Divorcing money from monetary policy," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 41-56.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Claudio Borio & Anna Zabai, 2018. "Unconventional monetary policies: a re-appraisal," Chapters, in: Peter Conti-Brown & Rosa M. Lastra (ed.), Research Handbook on Central Banking, chapter 20, pages 398-444, Edward Elgar Publishing.
    2. Garreth Rule, 2015. "Understanding the central bank balance sheet," Handbooks, Centre for Central Banking Studies, Bank of England, number 32, April.
    3. Keyra Primus, 2013. "'Excess Reserves, Monetary Policy and Financial Volatility," Centre for Growth and Business Cycle Research Discussion Paper Series 183, Economics, The University of Manchester.
    4. Primus, Keyra, 2013. "Excess Reserves, Monetary Policy and Financial Volatility," MPRA Paper 51670, University Library of Munich, Germany.
    5. Joseph Bitar, 2022. "A note on reserve requirements and banks' liquidity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4837-4852, October.
    6. M. Vari, 2014. "Implementing monetary policy in a fragmented monetary union," Working papers 529, Banque de France.
    7. Garth Baughman & Francesca Carapella, 2023. "A Simple Model of Voluntary Reserve Targets with Tolerance Bands," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(2-3), pages 655-672, March.
    8. Morten L Bech & Todd Keister, 2013. "On the Economics of Committed Liquidity Facilities," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Lilley & Mark Manning (ed.),Liquidity and Funding Markets, Reserve Bank of Australia.
    9. Bech, Morten & Keister, Todd, 2017. "Liquidity regulation and the implementation of monetary policy," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 64-77.
    10. 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.
    11. George A. Kahn, 2010. "Monetary policy under a corridor operating framework," Economic Review, Federal Reserve Bank of Kansas City, vol. 95(Q IV), pages 5-34.
    12. Apostolos Serletis & Khandokar Istiak & Periklis Gogas, 2013. "Interest Rates, Leverage, and Money," Open Economies Review, Springer, vol. 24(1), pages 51-78, February.
    13. Osborne, Matthew, 2016. "Monetary policy and volatility in the sterling money market," Bank of England working papers 588, Bank of England.
    14. Puriya Abbassi & Falk Bräuning & Niels Schulze, 2021. "Bargaining power and outside options in the interbank lending market," Financial Management, Financial Management Association International, vol. 50(2), pages 553-586, June.
    15. Aleksander Berentsen & Alessandro Marchesiani & Christopher Waller, 2014. "Floor Systems for Implementing Monetary Policy: Some Unpleasant Fiscal Arithmetic," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 523-542, July.
    16. Axel Löffler & Gunther Schnabl & Franziska Schobert, 2013. "Limits of Monetary Policy Autonomy and Exchange Rate Flexibility by East Asian Central Banks," Global Financial Markets Working Paper Series 48-2013, Friedrich-Schiller-University Jena.
    17. Hanes, Christopher, 2019. "Explaining the appearance of open-mouth operations in the 1990s U.S," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 682-701.
    18. Garth Baughman & Francesca Carapella, 2020. "Voluntary Reserve Targets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 583-612, March.
    19. Peter Spahn, 2010. "Asset Prices, Inflation and Monetary Control - Re-inventing Money as a Policy Tool," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 323/2010, Department of Economics, University of Hohenheim, Germany.
    20. Primus, Keyra, 2017. "Excess reserves, monetary policy and financial volatility," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 153-168.

    More about this item

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ice:wpaper:wp79. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Central Bank of Iceland (email available below). General contact details of provider: https://edirc.repec.org/data/sedgvis.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.