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The Liquidity and Liquidity Distribution Effects in Emerging Markets

The Case of Jordan

The Liquidity and Liquidity Distribution Effects in Emerging Markets by Jérôme Vandenbussche
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This paper analyzes the determinants of daily changes in Jordan''s interbank market overnight rate. It not only quantifies the classic liquidity effect, but also uncovers a liquidity distribution effect on both sides of the market, and shows that their magnitude is a decreasing and convex function of the level of excess reserves. It finds that the volatility of rate changes depends much more on the reserve surplus accumulated within a maintenance period than on the level of excess reserves. As Carpenter and Demiralp (2006), it uses the series of the central bank''s daily forecast errors to identify the liquidity effect.
International Monetary Fund; October 2009
25 pages; ISBN 9781452712727
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Title: The Liquidity and Liquidity Distribution Effects in Emerging Markets
Author: Jérôme Vandenbussche; Stanley Watt; Szabolcs Blazsek