This paper analyzes whether and how central banks can use currency options to lower exchange rate volatility and maintain (implicit) target zones in foreign exchange markets. It argues that selling rather than buying options will result in market makers dynamically hedging their long option...

This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market...

This paper investigates the impact of ample liquidity provision by the European Central Bank on the functioning of the overnight unsecured interbank market from 2008 to 2014. We use novel data on interbank transactions derived from TARGET2, the main euro area payment system. To identify...

In recent years, many money and repo rates in the United States have been between zero and 25 basis points. As Fed's liftoff approaches, the question of the level of these rates (and the markets that determine them) becomes increasingly important. The paper discusses (i) whether the Fed can...

This paper focuses on how changes in financial plumbing of the markets may impact themonetary policy options as central banks contemplate lift off from zero lower bound (ZLB). Under the proposed regulations, banks will face leverage ratio constraints. As a result of quantitative easing (QE),...

Motivated by the tension first revealed during the global financial crisis between thedomestic and international financial stability obligations of central bank reserve managers,this paper offers some reflections along four main lines. First, the paper highlights howofficial reserve management...

This paper studies the impact of major ECB monetary policy announcements on the portfolio allocation of euro area fund investors, using daily data between 2012 and mid-2016, a period that includes a variety of unconventional measures. We distinguish between active portfolio reallocation, driven...

Digital money is a logical step in a process of continuous technological advancement in payment systems. In response, central banks are reviewing their conduct of monetary operations in light of the new shape of financial markets and systems. The impact of digital money will depend on the type...

Central bank liquidity lines have gained momentum since the global financial crisis as a crosscurrency liquidity management tool. We provide a complete timeline of the ECB liquidity line announcements and study their signalling and spillback effects. The announcement of an ECB euro liquidity...

In this paper, we develop a model incorporating the impact of financial inclusion to study the implications of introducing a retail central bank digital currency (CBDC). CBDCs in developing countries (unlike in advanced countries) have the potential to bank large unbanked populations and boost...