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The dynamic relationship between the Euro overnight rate, the ECB´s policy rate and the term spread

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  • Offermanns, Christian J.
  • Nautz, Dieter

Abstract

This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the ECB's policy rate has been affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia to the term spread is non-symmetric. Moreover, the response of the Eonia to the policy rate depends on both, the repo auction format and the position of the Eonia in the ECB's interest rate corridor. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2006,01.

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Date of creation: 2006
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Handle: RePEc:zbw:bubdp1:4238

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Keywords: Monetary Policy Implementation; Term Structure of Interest Rates; Nonlinear Cointegration;

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  1. Bartolini, Leonardo & Prati, Alessandro, 2006. "Cross-country differences in monetary policy execution and money market rates' volatility," European Economic Review, Elsevier, vol. 50(2), pages 349-376, February.
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  7. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
  8. Perez-Quiros, Gabriel & Sicilia, Jorge & Gaspar, Vítor, 2001. "The ECB monetary policy strategy and the money market," Working Papers 47, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
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  11. Nautz, Dieter, 1997. "How Auctions Reveal Information: A Case Study on German REPO Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 17-25, February.
  12. Dieter Nautz & Jörg Oechssler, 2003. "Overbidding in Fixed Rate Tenders - An Empirical Assessment of Alternative Explanations," Bonn Econ Discussion Papers bgse10_2003, University of Bonn, Germany.
  13. Granger, C W J & Lee, T H, 1989. "Investigation of Production, Sales and Inventory Relationships Using Multicointegration and Non-symmetric Error Correction Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S145-59, Supplemen.
  14. Glenn D. Rudebusch, 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Working Papers in Applied Economic Theory 95-02, Federal Reserve Bank of San Francisco.
  15. Kuo, Shew-Huei & Enders, Walter, 2004. "The term structure of Japanese interest rates:: The equilibrium spread with asymmetric dynamics," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 84-98, March.
  16. Vitor Gaspar & Gabriel Pérez Quir? & Hugo Rodr?uez Mendiz?al, 2004. "Interest Rate Determination in the Interbank Market," UFAE and IAE Working Papers 603.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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Citations

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Cited by:
  1. Guender, Alfred V. & Rimer, Oyvinn, 2008. "The implementation of monetary policy in New Zealand: What factors affect the 90-day bank bill rate?," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 215-234, August.
  2. 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.
  3. Jardet, Caroline & Le Fol, Gaëlle, 2010. "Euro money market interest rate dynamics and volatility: how they respond to recent changes in the operational framework," Economics Papers from University Paris Dauphine 123456789/5391, Paris Dauphine University.
  4. Nautz, Dieter & Schmidt, Sandra, 2008. "Monetary Policy Implementation and the Federal Funds Rate," ZEW Discussion Papers 08-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Hassler, Uwe & Nautz, Dieter, 2008. "On the persistence of the Eonia spread," Economics Letters, Elsevier, vol. 101(3), pages 184-187, December.
  6. Linzert, Tobias & Schmidt, Sandra, 2007. "What Explains the Spread Between the Euro Overnight Rate and the ECB's Policy Rate?," ZEW Discussion Papers 07-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Hernandis, Lucía & Torró, Hipòlit, 2013. "The information content of Eonia swap rates before and during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5316-5328.
  8. Beirne, John, 2012. "The EONIA spread before and during the crisis of 2007–2009: The role of liquidity and credit risk," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 534-551.
  9. Nautz, Dieter & Offermanns, Christian J., 2008. "Volatility transmission in the European money market," The North American Journal of Economics and Finance, Elsevier, vol. 19(1), pages 23-39, March.
  10. Colarossi, Silvio & Zaghini, Andrea, 2007. "Gradualism, transparency and improved operational framework: A look at the overnight volatility transmission," CFS Working Paper Series 2007/16, Center for Financial Studies (CFS).
  11. Filippo COSSETTI & Francesco GUIDI, 2009. "ECB Monetary Policy and Term Structure of Interest Rates in the Euro Area: an Empirical Analysis," Working Papers 334, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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