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Volatility and liquidity in the Italian money market

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  • Palombini, Edgardo

Abstract

This paper constructs unbiased and model-free measures of daily and hourly volatility of the overnight interest rate negotiated on the Italian interbank deposits market (e-MID) using high-frequency transaction data. We find that the largest increases in volatility and the most notable variations of its intraday pattern occur at the end of the reserve maintenance period and at the end of each quarter. The average effect on market volatility of Eurosystem money market operations and interest rate decisions is not significant. We then try to assess the liquidity of the market investigating the relation between trading volume and volatility, finding that even large increases in trading activity do not cause sharp movements in interest rates.

Suggested Citation

  • Palombini, Edgardo, 2003. "Volatility and liquidity in the Italian money market," MPRA Paper 42699, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42699
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    File URL: https://mpra.ub.uni-muenchen.de/42699/1/MPRA_paper_42699.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jacob Oduor & Moses Muse Sichei & Samuel Kiplangat Tiriongo & Chris Shimba, 2014. "Working Paper 202 - Segmentation and efficiency of the interbank market and their implication for the conduct of monetary policy," Working Paper Series 2106, African Development Bank.
    2. Durré, Alain & Beaupain, Renaud, 2008. "The interday and intraday patterns of the overnight market: evidence from an electronic platform," Working Paper Series 988, European Central Bank.

    More about this item

    Keywords

    high-frequency data; liquidity; money market; overnight; payment system; reserve requirements; volatility;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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