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Monetary policy implementation and overnight rate persistence

  • Nautz, Dieter
  • Scheithauer, Jan

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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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 7 ()
Pages: 1375-1386

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:7:p:1375-1386
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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