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Monetary Policy Implementation and Overnight Rate Persistence

  • Dieter Nautz
  • Jan Scheithauer

Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have re- designed the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persis- tence of overnight rates. Our results suggest that a well-communicated and transparent interest rate target of the central bank is a particu- larly important condition for a low degree of overnight rate persistence.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2009-053.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-053.

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Length: 26 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2009-053
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  18. Puriya Abbassi & Dieter Nautz, 2010. "Monetary Transmission Right from the Start: The (Dis)Connection Between the Money Market and the ECB’s Main Refinancing Rates," Working Papers 1011, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 15 Jul 2010.
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