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Monetary policy implementation and overnight rate persistence

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  • Nautz, Dieter
  • Scheithauer, Jan

Abstract

Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persistence of overnight rates. Our results suggest that a well-communicated and transparent interest rate target of the central bank is a particularly important condition for a low degree of overnight rate persistence. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2010/26.

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Date of creation: 2010
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Handle: RePEc:zbw:fubsbe:201026

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Keywords: Controllability and Persistence of Interest Rates; Operational Framework of Central Banks; Long Memory and Fractional Integration;

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Cited by:
  1. 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.
  2. Nuno Cassola & Claudio Morana, 2008. "Modeling Short-Term Interest Rate Spreads in the Euro Money Market," International Journal of Central Banking, International Journal of Central Banking, vol. 4(4), pages 1-37, December.

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