This paper develops a theoretical model which explains several stylized facts observed in the euro area interbank market after the collapse of Lehman Brothers in 2008. The model shows that if costs of participating in the interbank market are high, the central bank assumes an intermediary...

This paper develops a theoretical model which replicates main features of the euro overnight interbank market and the Eurosystem's operational framework, which has been in place since September 2008. Main ingredients of the model are frictions in the interbank market, a refinancing operation...

This paper shows that remunerating required reserves can increase the flexibility of monetary policy. The remuneration at the current repo rate implies constant net marginal interest costs of holding required reserves. This allows the central bank also to change the rate also within a reserve...