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Monetary policy implementation and overnight rate persistence

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  • Nautz, Dieter
  • Scheithauer, Jan

Abstract

Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persistence of overnight rates. Our results suggest that a well-communicated and transparent interest rate target of the central bank is a particularly important condition for a low degree of overnight rate persistence.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 7 ()
Pages: 1375-1386

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:7:p:1375-1386

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Controllability and persistence of interest rates; Operational framework of central banks; Long memory and fractional integration; E52; C22;

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References

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  1. Puriya Abbassi & Dieter Nautz, 2010. "Monetary Transmission Right from the Start: The (Dis)Connection Between the Money Market and the ECB’s Main Refinancing Rates," SFB 649 Discussion Papers SFB649DP2010-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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  20. Nautz, Dieter & Offermanns, Christian J., 2008. "Volatility transmission in the European money market," The North American Journal of Economics and Finance, Elsevier, vol. 19(1), pages 23-39, March.
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Cited by:
  1. Nautz, Dieter & Schmidt, Sandra, 2009. "Monetary policy implementation and the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1274-1284, July.
  2. Cassola, Nuno & Morana, Claudio, 2008. "Modelling short-term interest rate spreads in the euro money market," Working Paper Series 0982, European Central Bank.

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