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Persistence and volatility in short-term interest rates

Author

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  • Nikolaos Panigirtzoglou
  • James Proudman
  • John Spicer

Abstract

It is important for monetary policy makers to know how closely money market rates follow the policy rates they set. This paper looks at the volatility and persistence of divergences between short-term market interest rates away from policy rates. This may also offer insights into the effectiveness of various approaches that central banks employ to smooth interest rate volatility, such as requiring minimum reserves. Using data for Germany, Italy and the United Kingdom, it is found that in all three countries there are significant temporary divergences, although the average divergence is close to zero.

Suggested Citation

  • Nikolaos Panigirtzoglou & James Proudman & John Spicer, 2000. "Persistence and volatility in short-term interest rates," Bank of England working papers 116, Bank of England.
  • Handle: RePEc:boe:boeewp:116
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    References listed on IDEAS

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    11. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-234, April.
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    14. Haydn Davies, 1998. "Averaging in a framework of zero reserve requirements: implications for the operation of monetary policy," Bank of England working papers 84, Bank of England.
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