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Volatility transmission in the European money market

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  • Nautz, Dieter
  • Offermanns, Christian J.

Abstract

The European overnight rate (Eonia) is the operational target of the European Central Bank (ECB) that signals the monetary policy stance and anchors the term structure of interest rates. This paper empirically investigates the transmission of Eonia volatility to longer term money market rates. Distinguishing between seasonal Eonia volatility due to, e.g., calendar effects and non-seasonal volatility which may be closer related to uncertainty about the policy intentions of the ECB reveals a significant volatility transmission even for the twelve-month rate. We also examine how the ECB's new operational framework introduced in March 2004 has influenced the Eonia and the transmission of volatility along the yield curve.

Suggested Citation

  • Nautz, Dieter & Offermanns, Christian J., 2008. "Volatility transmission in the European money market," The North American Journal of Economics and Finance, Elsevier, vol. 19(1), pages 23-39, March.
  • Handle: RePEc:eee:ecofin:v:19:y:2008:i:1:p:23-39
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    References listed on IDEAS

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    1. Dieter Nautz & Christian J. Offermanns, 2007. "The dynamic relationship between the euro overnight rate, the ECB's policy rate and the term spread," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(3), pages 287-300.
    2. Whitesell, William, 2006. "Interest rate corridors and reserves," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1177-1195, September.
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    7. Nautz, Dieter & Oechssler, Jorg, 2006. "Overbidding in fixed rate tenders--an empirical assessment of alternative explanations," European Economic Review, Elsevier, vol. 50(3), pages 631-646, April.
    8. Juan Ayuso & Andrew Haldane & Fernando Restoy, 1997. "Volatility transmission along the money market yield curve," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(1), pages 56-75, March.
    9. Furfine, Craig, 2003. "Standing Facilities and Interbank Borrowing: Evidence from the Federal Reserve's New Discount Window," International Finance, Wiley Blackwell, vol. 6(3), pages 329-347, Winter.
    10. Ángel León & Francis Benito & Juan Nave, 2006. "Modeling The Euro Overnight Rate," Working Papers. Serie AD 2006-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    12. A. Durre & S. Nardelli, 2007. "Volatility in the euro area money market: effects from the monetary policy operational framework," Post-Print hal-00355025, HAL.
    13. A. Durre & Stefano Nardelliz, 2007. "Volatility in the euro area money market : effects from the monetary policy operational framework," Post-Print hal-00297423, HAL.
    14. Nautz, Dieter, 1998. "Banks' demand for reserves when future monetary policy is uncertain," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 161-183, June.
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    Cited by:

    1. Filippo COSSETTI & Francesco GUIDI, 2009. "ECB Monetary Policy and Term Structure of Interest Rates in the Euro Area: an Empirical Analysis," Working Papers 334, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    2. Beaupain, Renaud & Durré, Alain, 2016. "Excess liquidity and the money market in the euro area," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 33-44.
    3. Mutu, Simona & Breşfelean, Vasile Paul & Göndör, Mihaela, 2011. "The impact of the financial crisis on the interbank money markets behavior. Evidence from several CEE transition economies," MPRA Paper 42102, University Library of Munich, Germany.
    4. 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.
    5. Trenca Ioan & Mutu Simona & Petria Nicolae, 2012. "Analyzing The European Market Of Interest Rate Swap Indices," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 614-619, December.
    6. 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.
    7. Linzert, Tobias & Schmidt, Sandra, 2007. "What Explains the Spread Between the Euro Overnight Rate and the ECB's Policy Rate?," ZEW Discussion Papers 07-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Beg, A.B.M. Rabiul Alam & Anwar, Sajid, 2012. "Sources of volatility persistence: A case study of the U.K. pound/U.S. dollar exchange rate returns," The North American Journal of Economics and Finance, Elsevier, vol. 23(2), pages 165-184.
    9. Hassler, Uwe & Nautz, Dieter, 2008. "On the persistence of the Eonia spread," Economics Letters, Elsevier, vol. 101(3), pages 184-187, December.
    10. Flavius ROVINARU & Mihaela ROVINARU, 2014. "Investments And Development: Milestones Of Romania’S Evolution," Romanian Journal of Economics, Institute of National Economy, vol. 38(1(47)), pages 197-207, June.
    11. repec:bla:sajeco:v:85:y:2017:i:3:p:455-478 is not listed on IDEAS
    12. repec:eee:ememar:v:31:y:2017:i:c:p:96-115 is not listed on IDEAS
    13. Silvio Colarossi & Andrea Zaghini, 2009. "Gradualism, transparency and the improved operational framework: a look at the overnight volatility transmission," Temi di discussione (Economic working papers) 710, Bank of Italy, Economic Research and International Relations Area.
    14. 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, pages 367-380, August.
    15. Aneta Hryckiewicz & Piotr Mielus & Karolina Skorulska & Malgorzata Snarska, 2018. "Does a bank levy increase frictions on the interbank market?," Working Papers 2018-033, Warsaw School of Economics, Collegium of Economic Analysis.
    16. Beirne, John, 2012. "The EONIA spread before and during the crisis of 2007–2009: The role of liquidity and credit risk," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 534-551.
    17. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2008. "Liquidity management and overnight rate calendar effects: Evidence from German banks," The North American Journal of Economics and Finance, Elsevier, vol. 19(1), pages 7-21, March.
    18. Codruta Maria FAT & Simona MUTU, 2014. "Analyzing The Relationship Between Eonia And Eoniaswap Rates. A Cointegration Approach," Romanian Journal of Economics, Institute of National Economy, vol. 38(1(47)), pages 197-207, June.
    19. repec:ine:journl:v:2:y:2014:i:44:p:197-207 is not listed on IDEAS
    20. 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.

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