Persistence and volatility in short-term interest rates
AbstractIt is important for monetary policy makers to know how closely money market rates follow the policy rates they set. This paper looks at the volatility and persistence of divergences between short-term market interest rates away from policy rates. This may also offer insights into the effectiveness of various approaches that central banks employ to smooth interest rate volatility, such as requiring minimum reserves. Using data for Germany, Italy and the United Kingdom, it is found that in all three countries there are significant temporary divergences, although the average divergence is close to zero.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 116.
Date of creation: Jun 2000
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-01 (All new papers)
- NEP-CBA-2001-10-01 (Central Banking)
- NEP-MON-2001-10-01 (Monetary Economics)
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