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

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Author Info
Silvio Colarossi () (Bank of Italy)
Andrea Zaghini () (Bank of Italy)

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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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Paper provided by Bank of Italy, Economic Research Department 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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Related research
Keywords: monetary policy; yield curve; GARCH;

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Find related papers by 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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  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. [Downloadable!] (restricted)
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