Sánchez-Fung, José R. (2008): The day-to-day interbank market, volatility, and central bank intervention in a developing economy.
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This paper investigates banking system instability vis-à-vis the day-to-day interbank market and monetary policy effectiveness in the Dominican Republic. The analysis reveals a negative relationship among excess banking system reserves and the interbank interest rate, and shows that in crisis ‘news’ affect the interbank rate’s volatility asymmetrically and non-linearly. The paper also finds that the 2002-2003 banking crisis and the subsequent central bank intervention as a lender of last resort weakened monetary policy’s transmission mechanism. These events undermined the ensuing stabilization effort, stressing the pervasive short-run trade-off between preserving macroeconomic stability and safeguarding financial stability, and the pitfalls of monetary policymaking in a highly volatility setting.
|Item Type:||MPRA Paper|
|Original Title:||The day-to-day interbank market, volatility, and central bank intervention in a developing economy|
|Keywords:||interbank market; financial stability; monetary policy; IMF stabilisation programme; Dominican Republic.|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||José R. Sánchez-Fung|
|Date Deposited:||12. Jun 2009 03:13|
|Last Modified:||12. Feb 2013 12:03|
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