No abstract

No abstract

No abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp07076.pdf Non-technical SummaryThe European Central Bank (ECB) implements monetary policy by conducting open market operations to steer the short term interest rates in the interbank market, managing the liquidity situation in the market and signalling the monetary policy stance. In particular, the euro overnight rate, the market interest rate that is most closely linked to the policy rate, is crucial for signalling the policy stance since the overnight rate marks the first step in the monetary policy transmission process. Therefore, it is desirable for the ECB to keep the EONIA in close distance to the policy rate.The spread between the EONIA and the ECB's policy rate has widened slowly but steadily since the introduction of the changes to the operational framework The analysis identifies possible driving forces underlying the evolution of the spread over time and aims to quantify the impact of specific factors on the observed upward shift. We show that the increase in the EONIA spread can for the largest part be explained by the current liquidity deficit. Moreover, tight liquidity conditions as well as an increase in banks' uncertainty about the liquidity conditions lead to a significant upward pressure on the spread. ECB's liquidity policy only has a significant impact on the reduction of the spread if a loose policy is conducted during the last week of an MRO. Interestingly, interest rate expectations have not been found to have an important influence.