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How to measure the unsecured money market? The Eurosystem�s implementation and validation using TARGET2 data

  • Luca Arciero


    (Bank of Italy)

  • Ronald Heijmans


    (De Nederlandsche Bank)

  • Richard Heuver


    (De Nederlandsche Bank)

  • Marco Massarenti


    (European Central Bank)

  • Cristina Picillo


    (Bank of Italy)

  • Francesco Vacirca


    (Bank of Italy)

This paper develops a methodology, based on Furfine (1999), for identifying unsecured interbank money market loans from the transaction data of the most important euro payment processing system TARGET2, for maturities ranging from one day (overnight) up to three months. The implementation has been verified with (i) interbank money market transactions executed on the e-MID Italian electronic trading platform and (ii) aggregated reporting by the EONIA panel banks. The Type2 (false negative) error for the best performing algorithm setup is 0.92%. We find aggregated interest rates very close to the EONIA but observe a high degree of heterogeneity across countries and market participants. The different stages of the global financial crisis and of the sovereign debt crises are clearly revealed in the interbank money market by significant drops in turnover. The results focus on three levels: euro-area, country group and country (Italy and the Netherlands).

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 215.

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Date of creation: Apr 2014
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Handle: RePEc:bdi:opques:qef_215_14
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  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. Gabrieli, Silvia & Georg, Co-Pierre, 2014. "A network view on interbank market freezes," Discussion Papers 44/2014, Deutsche Bundesbank, Research Centre.
  3. Giuseppe Cappelletti & Antonio De Socio & Giovanni Guazzarotti & Enrico Mallucci, 2011. "The impact of the financial crisis on inter-bank funding: evidence from Italian balance sheet data," Questioni di Economia e Finanza (Occasional Papers) 95, Bank of Italy, Economic Research and International Relations Area.
  4. Scott Hendry & Nadja Kamhi, 2007. "Uncollateralized Overnight Loans Settled in LVTS," Staff Working Papers 07-11, Bank of Canada.
  5. Heider, Florian & Hoerova, Marie & Holthausen, Cornelia, 2010. "Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk," CEPR Discussion Papers 7762, C.E.P.R. Discussion Papers.
  6. Q. Farooq Akram & Casper Christophersen, 2010. "Interbank overnight interest rates - gains from systemic importance," Working Paper 2010/11, Norges Bank.
  7. Ronald Heijmans & Richard Heuver & Daniëlle Walraven, 2011. "Monitoring the unsecured interbank money market using TARGET2 data," DNB Working Papers 276, Netherlands Central Bank, Research Department.
  8. Olivier Armantier & Adam Copeland, 2012. "Assessing the quality of “Furfine-based” algorithms," Staff Reports 575, Federal Reserve Bank of New York.
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