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Money Market Integration

Author

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  • LEONARDO BARTOLINI
  • SPENCE HILTON
  • ALESSANDRO PRATI

Abstract

We use transaction‐level data and detailed modeling of the high‐frequency behavior of federal funds–Eurodollar spreads to provide evidence of strong integration of the U.S. markets for federal funds and Eurodollars, the two core components of the dollar money market. Our evidence of negligible federal funds–Eurodollar premia contrasts with previous findings of large and predictable premia, which have been interpreted as evidence of segmentation between the markets for federal funds and Eurodollars. Our results, however, are consistent with possible persistent segmentation within the global Eurodollar market. We document several patterns in the behavior of federal funds–Eurodollar spreads, including liquidity effects from trading volume to yield spreads' volatility.

Suggested Citation

  • Leonardo Bartolini & Spence Hilton & Alessandro Prati, 2008. "Money Market Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 193-213, February.
  • Handle: RePEc:wly:jmoncb:v:40:y:2008:i:1:p:193-213
    DOI: 10.1111/j.1538-4616.2008.00109.x
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    File URL: https://doi.org/10.1111/j.1538-4616.2008.00109.x
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    References listed on IDEAS

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    10. Leonardo Bartolini & Alessandro Prati, 2003. "The execution of monetary policy: a tale of two central banks," Staff Reports 165, Federal Reserve Bank of New York.
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    Cited by:

    1. Bartolini, Leonardo & Hilton, Spence & McAndrews, James J., 2010. "Settlement delays in the money market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 934-945, May.
    2. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
    3. Roc Armenter & Benjamin Lester, 2017. "Excess Reserves and Monetary Policy Implementation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 212-235, January.

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