Abstract

This paper shows that the existence of deposit and lending facilities combined with an averaging provision for the reserve requirement are powerful tools to stabilize the overnight rate. We reach this conclusion by comparing the behavior of this rate in Germany before and after the start of the EMU. The analysis of the German experience allows us to isolate the effects on the overnight rate of these particular instruments of monetary policy. To illustrate that this outcome is a general conclusion and not a particular result of the German market, we develop a theoretical model of reserve management, which is able to reproduce our empirical findings.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 91-118
Launched on MUSE
2006-04-24
Open Access
No
Archive Status
Archived 2007
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