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The intraday interest rate under a liquidity crisis: the case of August 2007

  • Angelo Baglioni

    ()

    (DISCE, Università Cattolica)

  • Andrea Monticini

    ()

    (DISCE, Università Cattolica)

By analyzing high frequency data for the European interbank market, we show that the intraday interest rate (implicitly defined by the term structure of the ON rate) jumped by more than ten times at the outset of the financial turmoil in August 2007, resulting in an inefficiency of the money market. This took place despite the provision of unlimited free daylight overdrafts by the ECB, on a collateralized basis. We suggest that such result may be attributed to an increase of the liquidity premium and of the cost of collateral.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0083.pdf
File Function: First version, 2008
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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0083.

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Length: nn pages 16
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:ctc:serie3:ief0083
Contact details of provider: Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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