15 - On the optimal frequency of the central bank’s operations in the reserve market

Wetenschappelijke publicatie
Date 1 September 2002

In this paper we analyze the optimal frequency of open market operations carried out by a central bank with the objective of steering the overnight interest rate and its relationship with required reserves and standing facilities. For this purpose, we construct a simple model of the reserve market, assuming an error-correction mechanism for the commercial banks’ reserve management. The results provide not only a theoretical underpinning to some stylized facts and assertions made in the literature but also an opportunity of making precise quantitative comparisons of interest rates’ volatility for various frequencies of central banks’ operations.