Frictions in the Interbank Market and Uncertain Liquidity Needs: Implications for Monetary Policy Implementation

Abstract

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Interbank market and funding liquidity risk in a stock‐flow consistent model

“…First, because it does not require a consequent adjustment of reserve holdings. Second, because what is interesting are payment liquidity shocks that manifest themselves in the form of deposit outflows and represent a source of banks’ uncertain liquidity needs (Bucher et al, 2014), impacting banks’ reserve positions. Indeed, ‘it’s important to consider the effects of a net outflow of one bank, tantamount the net inflow to the other bank’ (Bindseil & König, 2012).…”

Overnight interbank markets and the determination of the interbank rate: A selective survey

“…Otherwise, the overnight rate would converge to the discount rate, as banks transacted exclusively in the lowest-cost market (Bucher, Hauck and Neyer, 2014). Therefore, to understand why banks may limit their transactions with the interbank market or the central bank we need to consider the relative costs of operating in the different markets.…”