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Controllability and persistence of money market rates along the yield curve: evidence from the euro area

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  • Busch, Ulrike
  • Nautz, Dieter

Abstract

Controllability of longer-term interest rates requires that the persistence of their deviations from the central bank's policy rate (i.e. the policy spreads) remains sufficiently low. This paper applies fractional integration techniques to assess the persistence of policy spreads of euro area money market rates along the yield curve. Independently from anticipated policy rate changes, there is strong evidence for all maturities that policy spreads exhibit long memory. We show that recent changes in the operational framework and the communication strategy of the European Central Bank have significantly decreased the persistence of euro area policy spreads and, thus, have enhanced the central bank's in influence on longer-term money market rates. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2009/5.

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Date of creation: 2009
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Handle: RePEc:zbw:fubsbe:20095

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Keywords: Long memory and fractional integration; controllability and persistence of interest rates; new operational framework of the ECB;

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  1. Davidson, James & Sibbertsen, Philipp, 2005. "Tests of Bias in Log-Periodogram Regression," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-317, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
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Cited by:
  1. Roland Strausz, 2009. "The Political Economy of Regulatory Risk," SFB 649 Discussion Papers SFB649DP2009-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Michal Grajek & Lars-Hendrik Röller, 2009. "Regulation and investment in network industries: Evidence from European telecoms," ESMT Research Working Papers ESMT-09-004, ESMT European School of Management and Technology.
  3. Barbara Choroś & Wolfgang Härdle & Ostap Okhrin, 2009. "CDO and HAC," SFB 649 Discussion Papers SFB649DP2009-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Maria Grith & Wolfgang Härdle & Juhyun Park, 2009. "Shape invariant modelling pricing kernels and risk aversion," SFB 649 Discussion Papers SFB649DP2009-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Abbassi, Puriya & Linzert, Tobias, 2012. "The effectiveness of monetary policy in steering money market rates during the financial crisis," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(4), pages 945-954.

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