Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission
This paper proposes a possible way of assessing the effect on interest rate dynamics of changes in the decision-making method, in the communication strategy and in the operational framework of a central bank. Through a generalized autoregressive conditional heteroscedasticity (GARCH) specification, we show that the United States and the 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 policy-making and found empirical evidence to show that the transmission of overnight volatility along the yield curve had entirely disappeared. Copyright 2009 Blackwell Publishing Ltd
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Volume (Year): 12 (2009)
Issue (Month): 2 (08)
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