Implicit intraday interest rate in the UK unsecured overnight money market
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.
|Date of creation:||19 Mar 2012|
|Contact details of provider:|| Postal: Bank of England, Threadneedle Street, London, EC2R 8AH|
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Antoine Martin, 2002.
"Optimal pricing of intra-day liquidity,"
Research Working Paper
RWP 02-02, Federal Reserve Bank of Kansas City.
- Viral V. Acharya & Ouarda Merrouche, 2013.
"Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis,"
Review of Finance,
European Finance Association, vol. 17(1), pages 107-160.
- Acharya, Viral V & Merrouche, Ouarda, 2012. "Precautionary hoarding of liquidity and inter-bank markets: Evidence from the sub-prime crisis," CEPR Discussion Papers 8859, C.E.P.R. Discussion Papers.
- Viral V. Acharya & Ouarda Merrouche, 2010. "Precautionary Hoarding of Liquidity and Inter-Bank Markets: Evidence from the Sub-prime Crisis," NBER Working Papers 16395, National Bureau of Economic Research, Inc.
- Antoine Martin & James J. McAndrews, 2007.
282, Federal Reserve Bank of New York.
- Bech, Morten L. & Garratt, Rod, 2001.
"The Intraday Liquidity Management Game,"
University of California at Santa Barbara, Economics Working Paper Series
qt0m6035wg, Department of Economics, UC Santa Barbara.
- Bhattacharya, Joydeep & Haslag, Joseph H. & Martin, Antoine, 2009.
"Why does overnight liquidity cost more than intraday liquidity?,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 33(6), pages 1236-1246, June.
- Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2007. "Why does overnight liquidity cost more than intraday liquidity?," Staff Reports 281, Federal Reserve Bank of New York.
- Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2007. "Why Does Overnight Liquidity Cost More Than Intraday Liquidity?," Staff General Research Papers Archive 13096, Iowa State University, Department of Economics.
- Gu, Chao & Guzman, Mark & Haslag, Joseph, 2011.
"Production, hidden action, and the payment system,"
Journal of Monetary Economics,
Elsevier, vol. 58(2), pages 172-182, March.
- Sébastien Kraenzlin & Thomas Nellen, 2010.
"Daytime is money,"
2010-06, Swiss National Bank.
- Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2011.
"The price of liquidity: The effects of market conditions and bank characteristics,"
Journal of Financial Economics,
Elsevier, vol. 102(2), pages 344-362.
- Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2011. "The price of liquidity: the effects of market conditions and bank characteristics," Working Paper Series 1376, European Central Bank.
- Leonardo Bartolini & Svenja Gudell & R. Spence Hilton & Krista B. Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Nov).
- Antoine Martin & James J. McAndrews, 2008.
"Should there be intraday money markets?,"
337, Federal Reserve Bank of New York.
- Clews, Roger & Salmon, Chris & Weeken, Olaf, 2010. "The Bank's money market framework," Bank of England Quarterly Bulletin, Bank of England, vol. 50(4), pages 292-301.
- Wetherilt, Anne & Zimmerman, Peter & Soramaki, Kimmo, 2010. "The sterling unsecured loan market during 2006-08: insights from network theory," Bank of England working papers 398, Bank of England.
- Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 111-142.
When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0447. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Media Team)
If references are entirely missing, you can add them using this form.