Financial Crisis; Monetary transmission process; Central bank auctions; European Central Bank; Money markets
339 Makroökonomie und verwandte Themen
The relation between the ECB’s main refinancing (MRO) rates and the money market is key
for the monetary transmission process in the euro area. This paper investigates how money
market rates respond to the new information revealed by MRO auctions. Our results confirm
a stabilizing level relationship between the overnight rate Eonia and MRO rates before the
financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes
even exacerbated the disconnection of money market rates from the policy-intended
interest rate level. These findings support the fixed rate full allotment policy introduced by
the ECB as an unconventionalmeasure to re-stabilize banks’ refinancing conditions.
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