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Volatility in the Euro area money market: effects from the monetary policy operational framework

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Author Info

  • Alain Durré
  • Stefano Nardelli

    (European Central Bank, Frankfurt-am-Main, Germany)

Abstract

This paper deals with the evolution of the realized volatility of the overnight interest rates in the Euro area money market using intraday data. It analyses in particular the pattern of the volatility of the overnight interest rate before and after the introduction of the structural changes to the Eurosystem's operational framework in March 2004. Using univariate and multivariate regressions, the results suggest that the level of the volatility of the overnight interest rate has significantly decreased after March 2004, whereas the sensitivity of the overnight interest rate has increased, especially over the last days of the reserve maintenance periods. Moreover, there is no evidence according to which the volatility of the overnight interest rate is transmitted to the volatility of money market interest rates at longer maturities. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.361
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 13 (2008)
Issue (Month): 4 ()
Pages: 307-322

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Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:4:p:307-322

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Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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References

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  1. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  2. Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The microstructure of the euro money market," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 895-948, November.
  3. Cassola, Nuno & Morana, Claudio, 2006. "Comovements in volatility in the euro money market," Working Paper Series 0703, European Central Bank.
  4. Välimäki, Tuomas, 2003. "Central bank tenders: three essays on money market liquidity auctions," Scientific Monographs E:26/2003, Bank of Finland.
  5. Cassola, Nuno & Morana, Claudio, 2003. "Volatility of interest rates in the euro area: evidence from high frequency data," Working Paper Series 0235, European Central Bank.
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Citations

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Cited by:
  1. Caroline Jardet & Gaelle Le Fol, 2010. "Euro money market interest rate dynamics and volatility: how they respond to recent changes in the operational framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 316-330.
  2. Ronald Heijmans & Lola Hern�ndez & Richard Heuver, 2013. "Determinants of the rate of the Dutch unsecured overnight money market," DNB Working Papers 374, Netherlands Central Bank, Research Department.
  3. Paolo Zagaglia, 2010. "Informed Trading in the Euro Money Market for Term Lending," Working Paper Series 02_10, The Rimini Centre for Economic Analysis.
  4. Andrea Monticini & Francesco Ravazzolo, 2014. "Forecasting the intraday market price of money," DISCE - Working Papers del Dipartimento di Economia e Finanza def10, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Hernandis, Lucía & Torró, Hipòlit, 2013. "The information content of Eonia swap rates before and during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5316-5328.
  6. Brousseau, Vincent & Durré, Alain, 2013. "Interest rate volatility: a consol rate-based measure," Working Paper Series 1505, European Central Bank.
  7. Beaupain, Renaud & Durré, Alain, 2012. "Nonlinear liquidity adjustments in the euro area overnight money market," Working Paper Series 1500, European Central Bank.
  8. Beaupain, Renaud & Durré, Alain, 2013. "Central bank reserves and interbank market liquidity in the euro area," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 259-284.

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