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The authors are affiliated to the International Monetary Fund, Universidad de Navarra, and Cornerstone Research respectively. They are very grateful to Ms. Nelly Batchoun for sharing with them the data for this paper as well as for helping interpret them, and to Daniel Hardy, Alain Ize, and Vance Martin for their useful comments on an earlier draft. This research project started when Mr. Watt was an economist at the International Monetary Fund.
Daily fluctuations in the overnight market may not be all noise. Hardy (1997) studies how a central bank should decide on the frequency with which it will conduct open market operations and the variability in short-term money market rates it will allow. He shows how the optimal operating procedure balances the value of attaining an immediate target against the value of extracting information from the free play of market forces. The contributions in Mayes and Toporowski (2007) also shed light on the issue of when, how and how much to intervene.
The maintenance period is the period during which banks are required to maintain reserves against their reservable deposits held during the related required reserves calculation period.
The CBJ later introduced changes to its credit facilities in May of 2007, more than two months after the end of our sample period.
Thornton (2006) argues that the forecasts made by the Board (as opposed to the trading desk) are not necessarily very good ones. Because our forecasts are those made by the actual desk at the CBJ (i.e., the monetary operations department), one could argue that our instrument has greater validity than Carpenter and Demiralp’s (2006).
Since October 1995, the Dinar has been officially pegged to the SDR but in practice has been pegged to the USD. The parity is fixed at 0.709 Jordanian Dinar per USD and there is a band of +/-; 0.15 percent around the central parity.
In May of 2007, the maturity of that facility was reduced to overnight.
On very rare occasions, the CBJ intervened once in-between two auctions.
The week-end is Friday and Saturday in Jordan.
These rules for reserve requirements were in place since September 6, 2004.
In a few instances, auctions took place during the first week of the maintenance period.
The banking system as a whole had JD 24.2 billion of assets, or 240 percent of GDP, and was well capitalized by international standards as of end-2006.
These data are completely anonymous.
Of course a positive interbank spread could also coexist with sizeable surplus liquidity if banks’ end-of-the-day (i.e., post interbank market) reserves position is volatile, reflecting the nature of the payments system.
It is likely that the requirement to hold at least 65 percent of required reserves each day (i.e., less-than-fullaveraging) played a role during that episode.
In probability theory, a martingale is a stochastic process in which the conditional expectation of the next value, given the current and preceding values, is the current value. If the martingale property holds, predictable changes in reserves should not cause predictable changes in interest rates within reserve maintenance periods.
This is the difference between actual evening closing balances and CBJ morning projections of the closing balances.