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Gradualism, transparency and the improved operational framework: a look at the overnight volatility transmission

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  • Silvio Colarossi

    ()
    (Bank of Italy)

  • Andrea Zaghini

    ()
    (Bank of Italy)

Abstract

This paper proposes a possible way of assessing the effect on interest rate dynamics of changes in the decision-making approach, in the communication strategy and in the operational framework of a central bank. Through a GARCH specification we show that the US and the euro area displayed a limited but significant spillover of volatility from money market to longer-term rates. We then checked the stability of this phenomenon in the most recent period of improved policy-making and found empirical evidence to show that the transmission of overnight volatility along the yield curve had entirely vanished.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 710.

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Date of creation: May 2009
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Handle: RePEc:bdi:wptemi:td_710_09

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Web page: http://www.bancaditalia.it
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Keywords: monetary policy; yield curve; GARCH;

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References

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Cited by:
  1. Nautz, Dieter & Schmidt, Sandra, 2008. "Monetary Policy Implementation and the Federal Funds Rate," ZEW Discussion Papers 08-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Nautz, Dieter & Scheithauer, Jan, 2011. "Monetary policy implementation and overnight rate persistence," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1375-1386.

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