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Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission

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  • Silvio Colarossi
  • Andrea Zaghini

Abstract

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.

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  • Silvio Colarossi & Andrea Zaghini, 2009. "Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission," International Finance, Wiley Blackwell, vol. 12(2), pages 151-170, August.
    • Handle: RePEc:bla:intfin:v:12:y:2009:i:2:p:151-170
    DOI: 10.1111/j.1468-2362.2009.01241.x
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    2. Ulrike Busch & Dieter Nautz, 2010. "Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 11(3), pages 367-380, August.
    3. Nautz, Dieter & Schmidt, Sandra, 2009. "Monetary policy implementation and the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1274-1284, July.
    4. C. Emre Alper & R. Armando Morales & Fan Yang, 2017. "Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya," South African Journal of Economics, Economic Society of South Africa, vol. 85(3), pages 455-478, September.
    5. Guglielmo Maria Caporale & Luis Alberiko Gil-Alana, 2024. "Persistence and long memory in monetary policy spreads," Applied Economics, Taylor & Francis Journals, vol. 56(20), pages 2422-2433, April.
    6. Mahmood, Asif, 2014. "Volatility Transmission of Overnight Rate along the Yield Curve in Pakistan," MPRA Paper 54256, University Library of Munich, Germany.
    7. Abbassi, Puriya & Nautz, Dieter, 2012. "Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations," The North American Journal of Economics and Finance, Elsevier, vol. 23(1), pages 54-69.
    8. Abbassi, Puriya & Nautz, Dieter, 2010. "Monetary transmission right from the start: The (dis)connection netween the money market and the ECB's main refinancing rates," Discussion Papers 2010/7, Free University Berlin, School of Business & Economics.
    9. Asif Mahmood, 2016. "Transmission of Volatility of Money Market Overnight Repo Rate along the Yield Curve in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 1-18.
    10. Nautz, Dieter & Scheithauer, Jan, 2011. "Monetary policy implementation and overnight rate persistence," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1375-1386.
    11. Brämer, Patrick & Gischer, Horst & Richter, Toni & Weiß, Mirko, 2013. "Competition in banks’ lending business and its interference with ECB monetary policy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 144-162.
    12. Osborne, Matthew, 2016. "Monetary policy and volatility in the sterling money market," Bank of England working papers 588, Bank of England.
    13. repec:bla:germec:v:11:y:2010:i::p:367-380 is not listed on IDEAS

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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