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

  • Alain Durré
  • Stefano Nardelli

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

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.

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File URL: http://hdl.handle.net/10.1002/ijfe.361
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 13 (2008)
Issue (Month): 4 ()
Pages: 307-322

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Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:4:p:307-322
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  1. Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The Microstructure of the Euro Money Market," CEPR Discussion Papers 3081, C.E.P.R. Discussion Papers.
  2. Cassola, Nuno & Morana, Claudio, 2003. "Volatility of interest rates in the euro area: evidence from high frequency data," Working Paper Series 0235, European Central Bank.
  3. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  4. Välimäki, Tuomas, 2003. "Central bank tenders: three essays on money market liquidity auctions," Scientific Monographs E:26/2003, Bank of Finland.
  5. Cassola, Nuno & Morana, Claudio, 2006. "Comovements in volatility in the euro money market," Working Paper Series 0703, European Central Bank.
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