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Volatility in the Euro area money market: effects from the monetary policy operational framework

Author

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  • Alain Durré
  • Stefano Nardelli

    (European Central Bank, Frankfurt-am-Main, Germany)

Abstract

This paper deals with the evolution of the realized volatility of the overnight interest rates in the Euro area money market using intraday data. It analyses in particular the pattern of the volatility of the overnight interest rate before and after the introduction of the structural changes to the Eurosystem's operational framework in March 2004. Using univariate and multivariate regressions, the results suggest that the level of the volatility of the overnight interest rate has significantly decreased after March 2004, whereas the sensitivity of the overnight interest rate has increased, especially over the last days of the reserve maintenance periods. Moreover, there is no evidence according to which the volatility of the overnight interest rate is transmitted to the volatility of money market interest rates at longer maturities. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Alain Durré & Stefano Nardelli, 2008. "Volatility in the Euro area money market: effects from the monetary policy operational framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 307-322.
  • Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:4:p:307-322
    DOI: 10.1002/ijfe.361
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    File URL: http://hdl.handle.net/10.1002/ijfe.361
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    References listed on IDEAS

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    1. Cassola, Nuno & Morana, Claudio, 2010. "Comovements in volatility in the euro money market," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 525-539, April.
    2. Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The microstructure of the euro money market," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 895-948, November.
    3. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    4. Nuno Cassola & Claudio Morana, 2006. "Volatility of interest rates in the euro area: Evidence from high frequency data," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 513-528.
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    Cited by:

    1. Monticini, Andrea & Ravazzolo, Francesco, 2014. "Forecasting the intraday market price of money," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 304-315.
    2. Marzo, Massimiliano & Zagaglia, Paolo, 2014. "Asymmetric information and term lending in the Euro money market: Evidence from the beginning of the turmoil," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 487-499.
    3. Paolo Zagaglia, 2008. "Money-market segmentation in the euro area : what has changed during the turmoil?," Research Discussion Papers 23/2008, Bank of Finland.
    4. 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.
    5. Caroline Jardet & Gaelle Le Fol, 2010. "Euro money market interest rate dynamics and volatility: how they respond to recent changes in the operational framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 316-330.
    6. Brousseau, Vincent & Durré, Alain, 2013. "Interest rate volatility: a consol rate-based measure," Working Paper Series 1505, European Central Bank.
    7. 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.
    8. Ronald Heijmans & Lola Hernández & Richard Heuver, 2013. "Determinants of the rate of the Dutch unsecured overnight money market," DNB Working Papers 374, Netherlands Central Bank, Research Department.
    9. Zagaglia, Paolo, 2010. "Informed trading in the Euro money market for term lending," MPRA Paper 20415, University Library of Munich, Germany.
    10. Caterina Liberati & Massimiliano Marzo & Paolo Zagaglia & Paola Zappa, 2015. "Drivers of demand and supply in the Euro interbank market: the role of “Key Players” during the recent turmoil," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(3), pages 207-250, August.
    11. repec:ctc:serie1:def10 is not listed on IDEAS
    12. Beaupain, Renaud & Durré, Alain, 2013. "Central bank reserves and interbank market liquidity in the euro area," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 259-284.

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