E43 - Interest Rates: Determination, Term Structure, and EffectsReturn

Following the latest subprime crisis, central banks introduced several unconventional instruments which had spillover effects on foreign exchange rates. The aim of our paper is to explore whether the use of zero lower bound (ZLB) and unconventional instruments has an impact on the changes in foreign exchange rates. By running dynamic panel regressions, we analysed this issue on a sample of 7 European central banks.
Based on our results, unconventional monetary policy had a significant impact on the exchange rate fluctuations in the short term, even with the use of instruments where there was no targeted exchange rate regulation.

This paper discusses the effects of the ECB's asset purchase programmes (APPs) on the SER spread, while the main focus is given to detail intraday analysis of implementation of the Public Sector Purchase Programme (PSPP). The SER spread is perceived as an important indicator of interbank trust in the Eurozone and its elevated level normally signals distortion and mistrust among commercial banks with a power to spill over into the whole financial sector. Recent development on interbank markets and especially within monetary policy in the Eurozone could have impaired the ability of the SER spread to act as a proxy for global systemic risk. The SER spread in this study was constructed and calculated using relevant European financial data and the consequent analysis was made on intraday and high-frequency (HF) 2015-2017 data. The ECB's APP, mainly PSPP, together with other instruments of monetary policy have impact on both legs of the SER spread and this paper tries to identify and quantify the degree of this effect by detailed HF market data analysis. HF intraday approach analysis is also being implemented in order to identify which leg of the SER spread was decisive in determining the SER spread change in the first three years of the PSPP implementation. Whether it was the "sovereign bond-based leg" directly affected by the ECB's PSPP purchases or the "interbank lending / STIR-based leg".

The paper examines the Czech crown money market in terms of products and volumes traded. The interest rate time series for the last 10 years are surveyed, and a parsimonious model is used to investigate to what extent the marketplace serves as the starting point for pricing customer cash products. Although satisfactory long-term relationships are observed, market disruptions are breaking up the assumed coherence. Special attention has to be paid to the decoupling of official fixing rates (PRIBOR) and real market rates in the current low interest rate environment.

This paper investigates the nature of the causal relationships among interbank market interest rates and corporate loans interest rates in four countries from the euro area (Austria, Belgium, France and Italy), and in the Czech Republic. The paper also estimates a development of bank credit margin in banking industries of these countries in period from January 2004 to March 2010. Using Johansen cointegration and Granger causality tests on monthly data we investigate long-term as well as short-term causalities between the interest rates. The results suggest that interest rate relationships differ in all selected countries, and also that foreign majority owners of the Czech banks could affect interest rate policy of the subsidiaries to offset losses realized by the parent banks.

Implementation of monetary policy assumes that monetary policy instruments stabilize O/N interest rates to the proximity of main policy rate to archive monetary targets. The function of stabilizing mechanism is based on simple rule that the volume of liquidity in the banking system is held in line with the demand of banks for reserves. In this paper main factors of banking system liquidity are analyzed in the context of bank's imperfect intertemporal substitution of reserves and with respect to predictibility of O/N interest rates volatility. Analysis of O/N PRIBOR and CZEONIA reference interest rates prove Czech National Bank's ability to stabilise O/N interest rates disregard overall excess liquidity in the banking system. It also identified structural changes acting in the money market like reduced instability of demand for reserve and decreased volatility of O/N interest rates due to introduction of credit facility or increased volatility of the spread between O/N interest rates and repo rate due to reduction of frequency of repo tenders. Rapid increase in the volatility of differences between OMO target and bank's supply of excess reserves is also resulting in the weakening of a direct relationship between O/N PRIBOR dynamics and repo tenders.