It represents a floor for the price of central bank liquidity at the tenders and constitutes the main signal of the ECB’s monetary policy stance. The MROs provide the bulk of liquidity to the financial sector – against collateral, on a reverse basis and for a maturity of one week.
To help frame the discussion, I will focus on two different strategies that have been proposed for dealing with market bubbles. The first approach--which I will label the conventional strategy--calls for central banks to focus exclusively on the stability of prices and economic activity over the next several years.