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Gradualism, transparency and improved operational framework: A look at the overnight volatility transmission

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  • Colarossi, Silvio
  • Zaghini, Andrea

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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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2007/16.

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Date of creation: 2007
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Handle: RePEc:zbw:cfswop:200716

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Keywords: Monetary Policy; Yield Curve; GARCH;

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Cited by:
  1. Busch, Ulrike & Nautz, Dieter, 2009. "Controllability and persistence of money market rates along the yield curve: evidence from the euro area," Discussion Papers 2009/5, Free University Berlin, School of Business & Economics.

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