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Money-market segmentation in the euro area: what has changed during the turmoil?

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  • Zagaglia, Paolo

Abstract

In this paper we study how the pattern of segmentation in the euro area money market has been affected by the recent turmoil in financial markets. We use nonparametric estimates of realized volatility to test for volatility spillovers between rates at different maturities. For the pre-turmoil period, exogeneity tests from VAR models suggest the presence of a transmission channel from longer maturities to the overnight. This disappears in the subsample starting in August 9 2007. The results of the semiparametric tests of Cappiello, Gerard and Manganelli (2005) report evidence of an increase in volatility contagion within the longer end of the money market curve. However this takes place in the lower tail of the empirical distributions.

Suggested Citation

  • Zagaglia, Paolo, 2008. "Money-market segmentation in the euro area: what has changed during the turmoil?," Bank of Finland Research Discussion Papers 23/2008, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2008_023
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    References listed on IDEAS

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    1. Alain Durré & Stefano Nardelli, 2008. "Volatility in the Euro area money market: effects from the monetary policy operational framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 307-322.
    2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2002. "Parametric and Nonparametric Volatility Measurement," Center for Financial Institutions Working Papers 02-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Carlo Rosa & Giovanni Verga, 2008. "The Impact of Central Bank Announcements on Asset Prices in Real Time," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 175-217, June.
    4. Lorenzo Cappiello & Bruno Gérard & Arjan Kadareja & Simone Manganelli, 2014. "Measuring Comovements by Regression Quantiles," Journal of Financial Econometrics, Oxford University Press, vol. 12(4), pages 645-678.
    5. Robert F. Engle & Simone Manganelli, 2004. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 367-381, October.
    6. Idier, Julien & Nardelli, Stefano, 2008. "Probability of informed trading on the euro overnight market rate: an update," Working Paper Series 987, European Central Bank.
    7. Cappiello, Lorenzo & Gérard, Bruno & Kadareja, Arjan & Manganelli, Simone, 2006. "Financial integration of new EU Member States," Working Paper Series 683, European Central Bank.
    8. Francisco Alonso & Roberto Blanco, 2005. "Is the volatility of the EONIA transmitted to longer-term euro money market interest rates?," Working Papers 0541, Banco de España.
    9. Hansen, Peter R. & Lunde, Asger, 2006. "Realized Variance and Market Microstructure Noise," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 127-161, April.
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    More about this item

    Keywords

    money market; high-frequency data; time-series methods;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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