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How to measure the unsecured money market? The Eurosystem’s implementation and validation using TARGET2 data

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Author Info

  • Luca Arciero

    ()
    (Bank of Italy)

  • Ronald Heijmans

    ()
    (De Nederlandsche Bank)

  • Richard Heuver

    ()
    (De Nederlandsche Bank)

  • Marco Massarenti

    ()
    (European Central Bank)

  • Cristina Picillo

    ()
    (Bank of Italy)

  • Francesco Vacirca

    ()
    (Bank of Italy)

Abstract

This paper develops a methodology, based on Furfine (1999), for identifying unsecured interbank money market loans from the transaction data of the most important euro payment processing system TARGET2, for maturities ranging from one day (overnight) up to three months. The implementation has been verified with (i) interbank money market transactions executed on the e-MID Italian electronic trading platform and (ii) aggregated reporting by the EONIA panel banks. The Type2 (false negative) error for the best performing algorithm setup is 0.92%. We find aggregated interest rates very close to the EONIA but observe a high degree of heterogeneity across countries and market participants. The different stages of the global financial crisis and of the sovereign debt crises are clearly revealed in the interbank money market by significant drops in turnover. The results focus on three levels: euro-area, country group and country (Italy and the Netherlands).

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 215.

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Date of creation: Apr 2014
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Handle: RePEc:bdi:opques:qef_215_14

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Keywords: euro interbank money market; Furfine; TARGET2; financial stability; EONIA;

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References

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  1. Giuseppe Cappelletti & Antonio De Socio & Giovanni Guazzarotti & Enrico Mallucci, 2011. "The impact of the financial crisis on inter-bank funding: evidence from Italian balance sheet data," Questioni di Economia e Finanza (Occasional Papers) 95, Bank of Italy, Economic Research and International Relations Area.
  2. Selva Demiralp & Brian Preslopsky & William Whitesell, 2004. "Overnight interbank loan markets," Finance and Economics Discussion Series 2004-29, Board of Governors of the Federal Reserve System (U.S.).
  3. Olivier Armantier & Adam Copeland, 2012. "Assessing the quality of “Furfine-based” algorithms," Staff Reports 575, Federal Reserve Bank of New York.
  4. Scott Hendry & Nadja Kamhi, 2007. "Uncollateralized Overnight Loans Settled in LVTS," Working Papers 07-11, Bank of Canada.
  5. Marie Hoerova & Cornelia Holthausen & Florian Heider, 2009. "Liquidity hoarding and interbank market spreads: the role of counterparty risk," 2009 Meeting Papers 929, Society for Economic Dynamics.
  6. 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).
  7. Q. Farooq Akram & Casper Christophersen, 2010. "Interbank overnight interest rates - gains from systemic importance," Working Paper 2010/11, Norges Bank.
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Cited by:
  1. Tölö , Eero & Jokivuolle, Esa & Viren, Matti, 2014. "Do private signals of a bank’s creditworthiness predict the bank’s CDS price? Evidence from the Eurosystem's overnight loan rates," Research Discussion Papers 9/2014, Bank of Finland.
  2. Matthias Raddant, 2012. "Structure in the Italian Overnight Loan Market," Kiel Working Papers 1772, Kiel Institute for the World Economy.
  3. Ronald Heijmans & Richard Heuver & Clement Levallois & Iman van Lelyveld, 2014. "Dynamic visualization of large transaction networks: the daily Dutch overnight money market," DNB Working Papers 418, Netherlands Central Bank, Research Department.
  4. 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.
  5. Fariba Karimi & Matthias Raddant, 2013. "Cascades in real interbank markets," Papers 1310.1634, arXiv.org.

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