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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)

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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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Publisher 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
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Handle: RePEc:cfs:cfswop:wp200716

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Related research
Keywords: Monetary Policy Yield Curve GARCH

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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