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

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Listed:
  • Luca Arciero
  • Ronald Heijmans
  • Richard Heuver
  • Marco Massarenti
  • Cristina Picillo
  • Francesco Vacirca

Abstract

This paper develops a methodology, based on Furfine (1999), to identify unsecured interbank money market loans from transaction data of the most important euro processing payment system, TARGET2, for maturity ranging from one day (overnight) up to three months. The implementation has been verified with (i) interbank money market transactions executed on the Italian trading platform e-MID and (ii) aggregated reporting by the EONIA panel banks. The Type 2 (false negative) error for the best performing algorithm setup is equal to 0.92%. The results focus on three levels: Eurosystem, core versus (geographical) periphery and countries (Italy and the Netherlands). The different stages of the global financial crisis and of the sovereign debt crises are clearly visible in the interbank money market, characterised by significant drops in the turnover. We find aggregated interest rates very close to the EONIA but we observe high heterogeneity across countries and market participants.

Suggested Citation

  • Luca Arciero & Ronald Heijmans & Richard Heuver & Marco Massarenti & Cristina Picillo & Francesco Vacirca, 2013. "How to measure the unsecured money market? The Eurosystem's implementation and validation using TARGET2 data," DNB Working Papers 369, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:369
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    References listed on IDEAS

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    1. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
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    6. Anna Kovner & David R. Skeie, 2013. "Evaluating the quality of fed funds lending estimates produced from Fedwire payments data," Staff Reports 629, Federal Reserve Bank of New York.
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    8. Trabandt, Mathias & Slavík, Michal & Checherita-Westphal, Cristina & Maurer, Henri & Catz, Julia & Warmedinger, Thomas & Afonso, António & Leiner-Killinger, Nadine & van Riet, Ad & Valenta, Vilém & Ni, 2010. "Euro area fiscal policies and the crisis," Occasional Paper Series 109, European Central Bank.
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    More about this item

    Keywords

    euro interbank money market; Furfine; TARGET2; financial stability; EONIA;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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