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How to Measure the Unsecured Money Market: The Eurosystem’s Implementation and Validation Using TARGET2 Data

Author

Listed:
  • Luca Arciero

    (Banca d’Italia)

  • Ronald Heijmans

    (De Nederlandsche Bank)

  • Richard Heuver

    (De Nederlandsche Bank)

  • Marco Massarenti

    (European Central Bank)

  • Cristina Picillo

    (Banca d’Italia)

  • Francesco Vacirca

    (Banca d’Italia)

Abstract

This paper develops a methodology, based on Furfine (1999), to identify unsecured interbank money-market loans from transaction data of the most important euro processing payment system, TARGET2, for maturity ranging from one day (overnight) up to one year. The implementation has been verified with (i) interbank money-market transactions executed on the Italian trading platform e-MID and (ii) individual reporting by the EONIA panel banks. The type 2 (false negative) error for the best performing algorithm setup is equal to 0.92 percent. The different stages of the global financial crisis and of the sovereign debt crises are clearly visible in the interbank money market, characterized by significant drops in the turnover. We find aggregated interest rates very close to EONIA but we observe high heterogeneity across countries and market participants.

Suggested Citation

  • Luca Arciero & Ronald Heijmans & Richard Heuver & Marco Massarenti & Cristina Picillo & Francesco Vacirca, 2016. "How to Measure the Unsecured Money Market: The Eurosystem’s Implementation and Validation Using TARGET2 Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 247-280, March.
    • Handle: RePEc:ijc:ijcjou:y:2016:q:1:a:8
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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