Volatility and liquidity in the Italian money market
AbstractThis paper constructs unbiased and model-free measures of daily and hourly volatility of the overnight interest rate negotiated on the Italian interbank deposits market (e-MID) using high-frequency transaction data. We find that the largest increases in volatility and the most notable variations of its intraday pattern occur at the end of the reserve maintenance period and at the end of each quarter. The average effect on market volatility of Eurosystem money market operations and interest rate decisions is not significant. We then try to assess the liquidity of the market investigating the relation between trading volume and volatility, finding that even large increases in trading activity do not cause sharp movements in interest rates.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42699.
Date of creation: Mar 2003
Date of revision:
high-frequency data; liquidity; money market; overnight; payment system; reserve requirements; volatility;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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