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Multiple equilibrium overnight rates in a dynamic interbank market game

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  • Jens Tapking

    (European Central Bank)

Abstract

We analyse a two period model of the interbank market, i.e. the market at which banks trade liquidity. We assume that banks do not take the interbank interest rate as given, but ultilaterally negotiate on interest rates and transaction volumes. The solution concept applied is the Shapley value. We show that there is a multiplicity of average equilibrium interest rates of the Þrst period so that the average interest rate in this period does not convey any information on the expected liquidity situation at the interbank market.

Suggested Citation

  • Jens Tapking, 2004. "Multiple equilibrium overnight rates in a dynamic interbank market game," Finance 0409042, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0409042
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    References listed on IDEAS

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    1. Spindt, Paul A. & Hoffmeister, J. Ronald, 1988. "The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(4), pages 401-416, December.
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    4. Tapking, Jens, 2002. "The Eurosystem's Standing Facilities in a General Equilibrium Model of the European Interbank Market," Discussion Paper Series 1: Economic Studies 2002,20, Deutsche Bundesbank.
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    Cited by:

    1. Edoardo Rainone, 2015. "Testing information diffusion in the decentralized unsecured market for euro funds," Temi di discussione (Economic working papers) 1022, Bank of Italy, Economic Research and International Relations Area.
    2. Bech, Morten & Monnet, Cyril, 2016. "A search-based model of the interbank money market and monetary policy implementation," Journal of Economic Theory, Elsevier, vol. 164(C), pages 32-67.
    3. Schanz, Jochen, 2009. "How do different models of foreign exchange settlement influence the risks and benefits of global liquidity management?," Bank of England working papers 374, Bank of England.
    4. Rainone, Edoardo, 2020. "The network nature of over-the-counter interest rates," Journal of Financial Markets, Elsevier, vol. 47(C).

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