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The information content of Eonia swap rates before and during the financial crisis

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  • Hernandis, Lucía
  • Torró, Hipòlit

Abstract

Before August 2007, implied forward rates in the overnight interest swap rates closely reflected market expectations about the future path of the Eonia, and therefore, about the future course of the ECB’s monetary policy stance. Nevertheless, this link was weakened considerably during the most acute episode of the financial crisis. Using the expectations hypothesis of the term structure as a benchmark model for the determination of the overnight interest swap rates, we find that after May 2010 the monetary transmission mechanism was partially restored when the ECB implemented various ‘unconventional measures’ in response to the financial crisis. On the contrary, liquidity and credit risks are still present in unsecured deposit markets, distorting the pricing and transmission of the ECB monetary policy stance along the Euribor rates. These results should be of interest for regulators, financial institutions, and researchers in European money markets.

Suggested Citation

  • Hernandis, Lucía & Torró, Hipòlit, 2013. "The information content of Eonia swap rates before and during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5316-5328.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5316-5328
    DOI: 10.1016/j.jbankfin.2013.08.001
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Hipòlit Torró, 2018. "The Response of European Energy Prices to ECB Monetary Policy," Working Papers 2018.09, Fondazione Eni Enrico Mattei.
    4. repec:ine:journl:v:2:y:2014:i:44:p:197-207 is not listed on IDEAS

    More about this item

    Keywords

    EONIA; Euribor; Swap; Expectations hypothesis; Cointegrated VAR models;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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