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Money-market segmentation in the Euro area: what has changed during the turmoil?

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  • Zagaglia, Paolo

    () (Bank of Finland Research)

Abstract

In this paper we study how the pattern of segmentation in the euro area money market has been affected by the recent turmoil in financial markets. We use nonparametric estimates of realized volatility to test for volatility spillovers between rates at different maturities. For the pre-turmoil period, exogeneity tests from VAR models suggest the presence of a transmission channel from longer maturities to the overnight. This disappears in the subsample starting in August 9 2007. The results of the semiparametric tests of Cappiello, Gerard and Manganelli (2005) report evidence of an increase in volatility contagion within the longer end of the money market curve. However this takes place in the lower tail of the empirical distributions.In this paper we study how the pattern of segmentation in the euro area money market has been affected by the recent turmoil in financial markets. We use nonparametric estimates of realized volatility to test for volatility spillovers between rates at different maturities. For the pre-turmoil period, exogeneity tests from VAR models suggest the presence of a transmission channel from longer maturities to the overnight. This disappears in the subsample starting in August 9 2007. The results of the semiparametric tests of Cappiello, Gerard and Manganelli (2005) report evidence of an increase in volatility contagion within the longer end of the money market curve. However this takes place in the lower tail of the empirical distributions.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 23/2008.

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Length: 33 pages
Date of creation: 20 Oct 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_023

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: money market; high-frequency data; time-series methods;

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