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This paper discusses commercial banks' demand for central bank reserves under two alternative monetary policy framework configurations, namely: (i) an interest rate corridor system with scarce liquidity, and (ii) a floor system with ample liquidity. It outlines the interaction between the monetary implementation framework used to steer short-term market interest rates and banks' demand for reserves. We find that by implementing a floor system, the Eurosystem has eliminated the opportunity costs of holding reserves and enabled banks to hold relatively large buffers of reserves compared with the corridor system. Additionally, the demand for reserves may have increased endogenously, as the environment of ample liquidity conditions has incentivised many banks to adapt their business models. In parallel, the demand for reserves has also increased for more exogenous reasons such as post-global financial crisis liquidity regulation and increased liquidity concentration. Our estimates indicate an increase, over recent years, in the level of excess liquidity required in the euro area to avoid a rise in short-term market rates. Moreover, the dependency on the adopted monetary policy instruments and the external environment highlights the increased uncertainty in estimating future levels of required reserves

Chinese financial markets have grown rapidly since their inception in the early 1990s, although financial intermediation still remains primarily bank-based.1 The rapid growth has called for an effectual regulatory framework and the China Securities Regulatory Commission (CSRC) has improved its work substantially over the recent years.* 2 However, deficiencies still prevail due to market fragmentation, lack of institutional investors, weak transparency and market irregularities. Furthermore, the listed companies themselves are problematic, because they are dominated by state controlled and financially weak enterprises. While WTO accession has fostered financial market reform together with a gradual capital account liberalisation in China, much still remains to be done (cf. Zhang R.uosi 2002: 21)., China aktuell, China aktuell - 5/2005

Following the emergence of the financial crisis in August 2007, the Basel Committee on Banking Supervision established in 2010 a new global regulatory framework. In addition to raising capital requirements, it introduced three ratios, two of which set out minimum standards for liquidity and funding risk, i.e. the liquidity coverage ratio and the net stable funding ratio, and one which aims to limit leverage in the banking system, i.e. the leverage ratio. All three ratios can have a number of implications for monetary policy implementation, in particular the liquidity coverage ratio and the net stable funding ratio owing to the special role of central banks in providing liquidity. This paper investigates the extent to which the regulatory initiatives might have already had an impact on banks’ behaviour in Eurosystem monetary policy operations. It also provides an overview of the regulatory state of play and major recent advancements in banks’ compliance with the three Basel III ratios. Based on aggregate data, the empirical evidence generally supports some of the theoretically predicted effects of the three ratios. However, no firm conclusions can be drawn as to whether the introduction of the three ratios could cause a significant change in banks’ recourse to Eurosystem monetary policy operations. This is partly due to the fact that, in aggregate, major developments, such as substantial fluctuations in the recourse to Eurosystem refinancing operations in the years between 2012 and 2015, have been driven by the financial crisis and the gradual recovery from it, as well as by the accommodative stance of monetary policy.

Given low interest rates in the large industrial countries and buoyant capital inflows into the emerging markets East Asian central banks have accumulated large stocks of foreign reserves. As the resulting easing of monetary conditions has become a threat to domestic price and financial stability, the East Asian central banks have embarked on substantial sterilization operations to absorb what we call 'surplus liquidity' from the domestic banking systems. This has brought the East Asian central banks into debtor positions versus the domestic banking systems. We show based on a central bank loss function that given buoyant capital inflows and exchange rate stabilization the absorption of surplus liquidity leads either to financial repression, or rising inflation or both. Assuming that a debtor central bank moved towards a freely floating exchange rate to gain monetary policy independence, we show that monetary policy independence is undermined by sterilization costs and revaluation losses on foreign reserves.

The paper investigates to what extent some basic tools of the ECBs monetary analysis can be useful for other central banks given their specific institutional, economic and financial environment. We take the case of the Bank of Russia in order to show how to adjust methods and techniques of monetary analysis for an economy that differs from the euro area as regards, for instance, the role of the exchange rate, the impact of dollarization and the functioning of sovereign wealth funds. A special focus of the analysis is the estimation of money demand functions for different monetary aggregates. The results suggest that there are stable relationships with respect to income and wealth and to a lesser extent to uncertainty variables and opportunity costs. Furthermore, the analysis also delivers preliminary results of the information content of money for inflation and for real economic development.

Due to buoyant capital inflows East Asian central banks with exchange rate targets accumulate foreign reserves and thereby increase surplus liquidity. East Asian central banks with more flexible exchange rate regimes also face surplus liquidity that mainly emanates from past accumulation of foreign reserves. We show based on an augmented Barro-Gordon-type central bank loss function that in both cases surplus liquidity limits monetary policy autonomy. In case of fixed exchange rates East Asian central banks can escape from the impossible trinity and gain monetary policy autonomy by using non-market-based sterilization which leads to financial sector distortions. In a flexible exchange rate regime monetary policy autonomy can be gained without financial sector distortions by using market-based sterilization. As central banks face substantial sterilization costs as well as revaluation losses on foreign reserves, however, monetary policy autonomy is eroded.

Given buoyant capital inflows and managed exchange rates the majority of emerging market central banks have continued to accumulate massive foreign reserves. If left unsterilized, the liquidity expansion can threaten domestic macroeconomic stability. To contain domestic inflation these central banks absorb rather then provide liquidity in their regular monetary policy operations. Based on an augmented Barro-Gordon framework we show that inflation targeting within an environment of surplus liquidity is less efficient, because absorbing liquidity raises the costs of monetary policy operations. By implementing sterilization costs into the central bank's objective function the inflation bias increases.

The paper analyses the monetary policy operations of central banks in the Middle East and North Africa (MENA). We distinguish the pattern of monetary policy operations of the liquidity providing central banks of the large industrialized countries (creditor central banks) and the liquidity absorbing central banks of emerging market economies (debtor central banks). Many debtor central banks provide liquidity through foreign exchange intervention in reaction to foreign exchange inflows. If the respective liquidity expansion is regarded as a threat to domestic price and financial stability, liquidity is partly absorbed through sterilization operations. The paper finds that most MENA countries are debtor central banks due to a general pattern of excessive liquidity creation as well as due to country specific reasons.

We estimate monetary policy rules for six central and eastern European countries (CEEC) by taking changes in the policy settings explicitly into account. Distinguishing rather fixed and more flexible exchange rate arrangements we find that for most countries exchange rates played an important role in monetary policy during the fixed exchange rate regime, whereas their influence disappears after the introduction of floating exchange rate regimes. This indicates that most countries followed their officially announced policy settings. For Slovenia and to some extent for Romania, however, we find evidence for exchange rate targeting, although they officially announced a managed float.

We investigate official and implicit nominal anchors for six Central and Eastern European countries during 1994 to 2002. Most of these countries have moved from fixed to more flexible regimes and adopted a form of inflation targeting. Achieving their new official targets has had mixed success. Furthermore, we find some evidence for implicit exchange rate targeting. It seems to be most pronounced for Slovenia, whereas the results for Hungary and Poland match the officially announced regimes. Consequently, moving officially to more flexible arrangements does not always lead to a de facto move.