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The intraday interest rate under a liquidity crisis: the case of August 2007

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  • Angelo Baglioni

    ()
    (DISCE, Università Cattolica)

  • Andrea Monticini

    ()
    (DISCE, Università Cattolica)

Abstract

By analyzing high frequency data for the European interbank market, we show that the intraday interest rate (implicitly defined by the term structure of the ON rate) jumped by more than ten times at the outset of the financial turmoil in August 2007, resulting in an inefficiency of the money market. This took place despite the provision of unlimited free daylight overdrafts by the ECB, on a collateralized basis. We suggest that such result may be attributed to an increase of the liquidity premium and of the cost of collateral.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0083.pdf
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Bibliographic Info

Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0083.

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Length: nn pages 16
Date of creation: Sep 2008
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Handle: RePEc:ctc:serie3:ief0083

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Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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Keywords: intraday interest rate; liquidity crisis; money market; central banking;

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References

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Citations

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Cited by:
  1. Andrea Monticini & Francesco Ravazzolo, 2011. "Forecasting the intraday market price of money," Working Paper, Norges Bank 2011/06, Norges Bank.
  2. Angelo Baglioni, 2009. "Liquidity crunch in the interbank market: is it credit or liquidity risk, or both?," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0091, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  3. Angelo Baglioni & Andrea Monticini, 2013. "Why Does the Interest Rate Decline Over the Day? Evidence from the Liquidity Crisis," Journal of Financial Services Research, Springer, Springer, vol. 44(2), pages 175-186, October.
  4. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2008. "Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  6. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," Department of Economics Working Papers, Stony Brook University, Department of Economics 10-01, Stony Brook University, Department of Economics.
  7. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  8. Gabbi, G. & Germano, G. & Hatzopoulos, V. & Iori, G. & Politi, M., 2012. "Market microstructure, bank's behaviour and interbank spreads," Working Papers, Department of Economics, City University London 12/06, Department of Economics, City University London.

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