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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.

Suggested Citation

  • Silvio Colarossi & Andrea Zaghini, 2009. "Gradualism, transparency and the improved operational framework: a look at the overnight volatility transmission," Temi di discussione (Economic working papers) 710, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_710_09
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    Cited by:

    1. Busch Ulrike & Nautz Dieter, 2010. "Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area," German Economic Review, De Gruyter, vol. 11(3), pages 367-380, August.
    2. 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.
    3. C. Emre Alper & R. Armando Morales & Fan Yang, 2017. "Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya," South African Journal of Economics, Economic Society of South Africa, vol. 85(3), pages 455-478, September.
    4. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2020. "Persistence and Long Memory in Monetary Policy Spreads," CESifo Working Paper Series 8664, CESifo.
    5. Mahmood, Asif, 2014. "Volatility Transmission of Overnight Rate along the Yield Curve in Pakistan," MPRA Paper 54256, University Library of Munich, Germany.
    6. Abbassi, Puriya & Nautz, Dieter, 2012. "Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations," The North American Journal of Economics and Finance, Elsevier, vol. 23(1), pages 54-69.
    7. Asif Mahmood, 2016. "Transmission of Volatility of Money Market Overnight Repo Rate along the Yield Curve in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 1-18.
    8. 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.
    9. Brämer, Patrick & Gischer, Horst & Richter, Toni & Weiß, Mirko, 2013. "Competition in banks’ lending business and its interference with ECB monetary policy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 144-162.
    10. Osborne, Matthew, 2016. "Monetary policy and volatility in the sterling money market," Bank of England working papers 588, Bank of England.
    11. Ulrike Busch & Dieter Nautz, 2010. "Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 11(3), pages 367-380, August.

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    More about this item

    Keywords

    monetary policy; yield curve; GARCH;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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