Cross-country differences in monetary policy execution and money market rates’ volatility |
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Authors: | Leonardo Bartolini |
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Institution: | a Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045-0001, USA b Research Department, International Monetary Fund, 700 19th Street NW, Washington, DC 20431, USA |
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Abstract: | Volatility patterns in overnight interest rates display differences across industrial countries that existing models—designed to replicate the features of individual countries’ markets—cannot account for. This paper presents an equilibrium model of the overnight interbank market that matches cross-country differences in patterns in interest volatility by incorporating differences in how central banks manage liquidity in response to shocks. Our model is consistent with central banks’ practice of rationing access to marginal facilities when the objective of stabilizing short-term interest rates conflicts with another high-frequency objective, such as an exchange rate target. |
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Keywords: | E43 E44 E52 |
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