the (dis)connection between the money market and the ECB’s main refinancing
Abbassi, Puriya; Nautz, Dieter
Year of publication:
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.