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We investigate the effects of the financial crisis on the stationarity of real interest rates for a group of Euro area countries. We use a new unit root test developed by Pesaran et al. (J Econom 115(1): 53–74, 2013) that allows for multiple unobserved factors in a panel set up. In this multifactor framework, we make use of a number of additional variables such as the stock price volatility and monetary policy expectations that are assumed to share common factors with the real interest rate. Based on recursive (Pesaran et al. 2013) test statistics, our results suggest that while short-term and long-term real interest rates were stationary before the financial crisis, they became non-stationary during the crisis period. Robustness analysis shows that the results are not sensitive to the use of ex-post real interest rates versus ex-ante real interest rates.

1. INTRODUCTION In response to the liquidity crisis that began in August 2007, central banks designed a variety of tools for supplying liquidity to financial institutions. The Federal Reserve introduced [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2009.09.013 Byline: Erhan Artuc, Selva Demiralp Keywords: Discount window; Primary credit; Federal funds market Abstract: In 2003, the Federal Reserve introduced primary credit as its main discount window lending program. This program replaced the adjustment credit program, which, subject to a number of restrictions, had generated a stigma associated with borrowing from the Federal Reserve. Lessening the stigma of borrowing was viewed as essential for reducing the reluctance to borrow from the Federal Reserve. We develop a structural model of daily borrowing. Using this model, we estimate the implicit cost associated with borrowing. Our results suggest that the stigma of borrowing is significantly reduced. Author Affiliation: Department of Economics, Koc University, Istanbul 34450, Turkey Article History: Received 24 October 2008; Accepted 18 September 2009

A study on volatility of funds rates based on the movement in required reserves and open market operations in United States is presented. The role of central banks in controlling the reserve supply and interest rates is also discussed.

I. INTRODUCTION The textbook view of the monetary transmission mechanism rests on the central bank's ability to manipulate the overnight interest rate by controlling the reserve supply, followed by a [...]