Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may

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Until June 2000 the European Central Bank (ECB) used fixed rate tenders for its weekly repo auctions. A switch to variable rate tenders became necessary due to massive overbidding by banks. In this paper we introduce a stylized game among banks to investigate this overbidding phenomenon. Our results confirm the weakness of the fixed rate tender format and indicate that the ECB's liquidity management has significantly improved since the switch to the variable rate system. Yet recent episodes of rate cut expectations suggest that the ECB's practice of setting a minimum bid rate should be abandoned in favor of a more symmetric interest rate target.

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This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the ECB's policy rate has been affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia to the term spread is non-symmetric. Moreover, the response of the Eonia to the policy rate depends on both, the repo auction format and the position of the Eonia in the ECB's interest rate corridor. Reserve, the interbank money market for overnight lending is the key channel through which monetary policy is executed. Overnight rates are the operational target of monetary policy that anchors the term structure of interest rates. Understanding the determinants and the dynamics of the overnight rate is therefore of crucial importance for implementing monetary policy in an efficient way. This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term structure and the ECB's policy rate is affected by rate expectations and the operational framework of the ECB. KeywordsOur empirical setup for the analysis of the overnight rate dynamics emphasizes the role of two separate relations driving the long-run behavior of the Eonia. One major determinant of the level of the overnight rate is the central bank's policy rate defined as the repo rate set in the ECB's main refinancing operations. A second long-run relation is suggested by the expectations hypothesis of the term structure which implies that the Eonia adjusts to the difference from a longer-term interest rate. Our empirical model incorporates both effects, taking account of persistent deviations of the Eonia from the policy rate at the end of the monthly reserve maintenance period. These deviations are found to represent a counterintuitive reaction of the Eonia to rate change expectations, which can be explained by the disturbing influence of banks' under-and overbidding on the interbank market in the period before the ECB reformed its operational framework in Similar to the US Federal funds rate target, the ECB's fixed repo rate seems to be a symmetric policy rate. In contrast, one might expect that a minimum bid rate, as applied by the ECB since June 2000, is particularly effective in defining a lower bound for interest rates. Furthermore, the under-and overbidding episodes in the ECB's main refinancing operations suggest that also the direction of expected rate changes affected Eonia dynamics.We therefore extend our base model and allow for non-symmetric adjustment to both longrun relations, taking account of potential influences from monetary policy implementation by the ECB. In particular, we investigate how the dynamic adjustment of the Eonia to its long-run determinants depends on the June 2000 change in the auction format of the ECB's main refinancing operations.Our results indicate that the dynamics of the Eonia within the monthly reserve maintenance period depend on the auction format. Interestingly, the introduction of v...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specic monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries. JEL classication: E41, E51, E52Keywords: Money demand, cross-country analysis, panel error correction model, euro area * We thank Jörg Breitung and Christian Oermanns for helpful comments and suggestions.

Anchored inflation expectations are of key importance for monetary policy. If long-term inflation expectations are well-anchored, they should be unaffected by short-term economic news. This letter introduces newsregressions with multiple endogenous breaks to investigate the de-and re-anchoring of US inflation expectations. We confirm earlier evidence on the de-anchoring of expectations driven by the outbreak of the crisis. Our results indicate that expectations have not been re-anchored ever since.