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Gradualism, Transparency and Improved Operational Framework: A Look at the Overnight Volatility Transmission

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Author Info

  • Silvio Colarossi

    () (Banca d'Italia)

  • Andrea Zaghini

    () (Banca d'Italia and CFS)

Abstract

This paper proposes a possible way of assessing the effect of interest rate dynamics on changes in the decision-making approach, communication strategy and operational framework of a Central bank. Through a GARCH specification we show that the USA and 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 policymaking and found empirical evidence that the transmission of overnight volatility along the yield curve vanished soon after specific policy changes of the FED and ECB.

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Bibliographic Info

Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2007/16.

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Length: 27 pages
Date of creation: 09 Mar 2007
Date of revision:
Handle: RePEc:cfs:cfswop:wp200716

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Keywords: Monetary Policy; Yield Curve; GARCH;

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References

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Cited by:
  1. Ulrike Busch & Dieter Nautz, 2009. "Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area," SFB 649 Discussion Papers SFB649DP2009-029, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  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.

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