- 15 September 2017
- OCCASIONAL PAPER SERIES - No. 196Details
- TARGET balances have risen during the period of the Eurosystem’s asset purchase programme (APP). The APP gives rise to substantial cross-border flows of reserves at the time of asset purchases and beyond, reflecting the interaction of decentralised monetary policy implementation and the integrated euro area financial structure. This financial structure, in which only a handful of locations act as gateways between the euro area and the rest of the world, leads to rising TARGET balances at the time of APP purchases and the persistence of TARGET balances in the context of subsequent portfolio rebalancing. TARGET balances per se are not necessarily an indicator of stress in bank funding markets, financial market fragmentation or unsustainable balance of payments developments.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G02 : Financial Economics→General→Behavioral Finance: Underlying Principles
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
- 7 August 2018
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 5, 2018Details
- The overnight money market plays an important role in the implementation and transmission of monetary policy in the euro area. Money market fragmentation is a sign of impairment in the transmission mechanism which merits the close monitoring of a set of suitable indicators. This article discusses concepts and measurement of fragmentation and proposes a new measure of fragmentation from a monetary policy transmission perspective.
- JEL Code
- D53 : Microeconomics→General Equilibrium and Disequilibrium→Financial Markets
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
- 26 January 2021
- WORKING PAPER SERIES - No. 2515The implications of liquidity regulation for monetary policy implementation and the central bank balance sheet size: an empirical analysis of the euro areaDetails
- We analyse the impact of the Liquidity Coverage Ratio (LCR) on the demand for central bank reserves in the euro area with difference-in-differences estimation techniques. Using a novel dataset and an identification strategy that exploits the cross-country heterogeneity in the regulatory treatment of reserves for LCR purposes prior to the announcement of a harmonised euro area standard as a quasi-natural experiment, we find evidence that points to LCR-induced demand for reserves. Specifically, our results suggest that banks with low LCRs relative to peers increased their central bank reserve holdings as a result of the LCR regulation. Our findings have economically meaningful implications for the operational framework of monetary policy and imply that the Eurosystem’s balance sheet may need to remain larger than it was prior to the financial crisis and the associated introduction of new liquidity regulation.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation