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Demand for reserves and the central bank’s management of interest rates


The implementation of monetary policy is prevalently done by interest rate targeting with a short term market rate serving as operational target. The instruments for achieving the operational target are the provision of reserves and the interest rate charged in these transactions. This paper presents a model for the estimation of the demand curve for reserves, derived from the central bank’s fixed rate tender auction and the interbank money market. Using data from Switzerland, the slope of the demand curve is estimated. Furthermore, properties of the demand curve such as the slope patterns in the course of a maintenance period and the slope in different monetary regimes are assessed. We find a steeper demand curve towards the end of the maintenance period and an increasing slope when the general interest rate level is high. Further, we investigate the role of the Swiss National Bank’s (SNB) interest rate in the fixed rate tender auctions. There is evidence that the SNB uses its auction rate to guide the interbank market rate.


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Correspondence to Sébastien Kraenzlin.

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The content of the publication is the sole responsibility of the authors and does not necessarily reflect the views of the Swiss National Bank. We gratefully acknowledge helpful comments from Nicole Braendle, Vincent Crettol, Karl Hug, Marco Huwiler, Thomas J. Jordan, Peter Kugler, Caesar Lack, Yvan Lengwiler, Ernst Lienhard, Christoph Meyer, Dewet Moser and Lidia Schmidt.

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Kraenzlin, S., Schlegel, M. Demand for reserves and the central bank’s management of interest rates. Swiss J Economics Statistics 148, 532–555 (2012).

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