Implicit intraday interest rate in the UK unsecured overnight money market
AbstractThis paper estimates the intraday value of money implicit in the UK unsecured overnight money market. Using transactions data on overnight loans advanced through the UK large value payments system CHAPS in 2003-2009, we find a positive and economically significant intraday interest rate. While the implicit intraday interest rate is quite small pre-crisis, it increases more than tenfold during the financial crisis of 2007-2009. The key interpretation is that an increase in implicit intraday interest rate reects the increased opportunity cost of pledging collateral intraday and can be used as an indicator to gauge the stress of the payment system. We obtain qualitatively similar estimates of the intraday interest rate by using quoted intraday bid and offer rates and confirm that our results are not driven by the intraday variation in the bid-ask spread.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2013/09.
Length: 42 pages
Date of creation: 14 Mar 2013
Date of revision:
Interbanl money market; Intraday liquidity;
Other versions of this item:
- Jurgilas, Marius & Zikes, Filip, 2012. "Implicit intraday interest rate in the UK unsecured overnight money market," Bank of England working papers 447, Bank of England.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-BAN-2013-03-23 (Banking)
- NEP-FMK-2013-03-23 (Financial Markets)
- NEP-MAC-2013-03-23 (Macroeconomics)
- NEP-MON-2013-03-23 (Monetary Economics)
- NEP-MST-2013-03-23 (Market Microstructure)
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