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Controllability and persistence of money market rates along the yield curve: evidence from the euro area

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  • Busch, Ulrike
  • Nautz, Dieter

Abstract

Controllability of longer-term interest rates requires that the persistence of their deviations from the central bank's policy rate (i.e. the policy spreads) remains sufficiently low. This paper applies fractional integration techniques to assess the persistence of policy spreads of euro area money market rates along the yield curve. Independently from anticipated policy rate changes, there is strong evidence for all maturities that policy spreads exhibit long memory. We show that recent changes in the operational framework and the communication strategy of the European Central Bank have significantly decreased the persistence of euro area policy spreads and, thus, have enhanced the central bank's in influence on longer-term money market rates.

Suggested Citation

  • Busch, Ulrike & Nautz, Dieter, 2009. "Controllability and persistence of money market rates along the yield curve: evidence from the euro area," Discussion Papers 2009/5, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:20095
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Roland Strausz, 2009. "The Political Economy of Regulatory Risk," SFB 649 Discussion Papers SFB649DP2009-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    2. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2016. "Persistence and cyclical dependence in the monthly euribor rate," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 157-171, January.
    3. repec:bla:sajeco:v:85:y:2017:i:3:p:455-478 is not listed on IDEAS
    4. Michał Grajek & Lars-Hendrik Röller, 2012. "Regulation and Investment in Network Industries: Evidence from European Telecoms," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 189-216.
    5. Abbassi, Puriya & Linzert, Tobias, 2012. "The effectiveness of monetary policy in steering money market rates during the financial crisis," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 945-954.
    6. Barbara Choroś & Wolfgang Härdle & Ostap Okhrin, 2009. "CDO and HAC," SFB 649 Discussion Papers SFB649DP2009-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    7. Maria Grith & Wolfgang Härdle & Juhyun Park, 2009. "Shape invariant modelling pricing kernels and risk aversion," SFB 649 Discussion Papers SFB649DP2009-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    8. C. Emre Alper & R. Armando Morales & Fan Yang, 2017. "Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya," South African Journal of Economics, Economic Society of South Africa, vol. 85(3), pages 455-478, September.

    More about this item

    Keywords

    Long memory and fractional integration; controllability and persistence of interest rates; new operational framework of the ECB;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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