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Implicit intraday interest rate in the UK unsecured overnight money market

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  • Jurgilas, Marius

    (Norges Bank)

  • Zikes, Filip

    (Bank of England)

Abstract

This paper estimates the intraday value of money implicit in the UK unsecured overnight money market. Using transactions data on overnight loans advanced through the UK large-value payments system (CHAPS) in 2003-09, we find a positive and economically significant intraday interest rate. While the implicit intraday interest rate is quite small pre-crisis, it increases more than tenfold during the financial crisis of 2007-09. The key interpretation is that an increase in the implicit intraday interest rate reflects the increased opportunity cost of pledging collateral intraday and can be used as an indicator to gauge the stress of the payment system. We obtain qualitatively similar estimates of the intraday interest rate using quoted intraday bid and offer rates and confirm that our results are not driven by the intraday variation in the bid-ask spread.

Suggested Citation

  • Jurgilas, Marius & Zikes, Filip, 2012. "Implicit intraday interest rate in the UK unsecured overnight money market," Bank of England working papers 447, Bank of England.
    • Handle: RePEc:boe:boeewp:0447
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    References listed on IDEAS

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    11. Baglioni, Angelo & Monticini, Andrea, 2010. "The intraday interest rate under a liquidity crisis: The case of August 2007," Economics Letters, Elsevier, vol. 107(2), pages 198-200, May.
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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. repec:ctc:serie1:def10 is not listed on IDEAS
    3. Denbee, Edward & Garratt, Rodney & Zimmerman, Peter, 2014. "Variations in liquidity provision in real-time payment systems," Bank of England working papers 513, Bank of England.

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    More about this item

    Keywords

    Interbank money market; intraday liquidity;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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