IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v40y2008i1p193-213.html
   My bibliography  Save this article

Money Market Integration

Author

Listed:
  • LEONARDO BARTOLINI
  • SPENCE HILTON
  • ALESSANDRO PRATI

Abstract

We use transaction-level data and detailed modeling of the high-frequency behavior of federal funds-Eurodollar spreads to provide evidence of strong integration of the U.S. markets for federal funds and Eurodollars, the two core components of the dollar money market. Our evidence of negligible federal funds-Eurodollar premia contrasts with previous findings of large and predictable premia, which have been interpreted as evidence of segmentation "between" the markets for federal funds and Eurodollars. Our results, however, are consistent with possible persistent segmentation "within" the global Eurodollar market. We document several patterns in the behavior of federal funds-Eurodollar spreads, including liquidity effects from trading volume to yield spreads' volatility. Copyright 2008 The Ohio State University.

Suggested Citation

  • Leonardo Bartolini & Spence Hilton & Alessandro Prati, 2008. "Money Market Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 193-213, February.
    • Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:1:p:193-213
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Griffiths, Mark D. & Winters, Drew B., 1995. "Day-of-the-week effects in federal funds rates: Further empirical findings," Journal of Banking & Finance, Elsevier, vol. 19(7), pages 1265-1284, October.
    2. Quiros, Gabriel Perez & Mendizabal, Hugo Rodriguez, 2006. "The Daily Market for Funds in Europe: What Has Changed with the EMU?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 91-118, February.
    3. Kahn, Charles M & McAndrews, James & Roberds, William, 2003. "Settlement Risk under Gross and Net Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 591-608, August.
    4. Rhee, S Ghon & Chang, Rosita P, 1992. "Intra-day Arbitrage Opportunities in Foreign Exchange and Eurocurrency Markets," Journal of Finance, American Finance Association, vol. 47(1), pages 363-379, March.
    5. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    6. Ken B. Cyree & Drew B. Winters, 2001. "Analysis Of Federal Funds Rate Changes And Variance Patterns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(3), pages 403-418, September.
    7. Cyree, Ken B & Winters, Drew B, 2001. "Analysis of Federal Funds Rate Changes and Variance Patterns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(3), pages 403-418, Fall.
    8. Leonardo Bartolini & Alessandro Prati, 2003. "The execution of monetary policy: a tale of two central banks [‘Estimating continuous-time stochastic volatility models of the short-term interest rate’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 435-467.
    9. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2002. "Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 137-159, February.
    10. Balduzzi, Pierluigi, et al, 1998. "Interest Rate Targeting and the Dynamics of Short-Term Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 26-50, February.
    11. Peek, Joe & Rosengren, Eric S., 2001. "Determinants of the Japan premium: actions speak louder than words," Journal of International Economics, Elsevier, vol. 53(2), pages 283-305, April.
    12. Prati, Alessandro & Bartolini, Leonardo & Bertola, Giuseppe, 2003. "The overnight interbank market: Evidence from the G-7 and the Euro zone," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 2045-2083, October.
    13. Andersen, Torben G. & Lund, Jesper, 1997. "Estimating continuous-time stochastic volatility models of the short-term interest rate," Journal of Econometrics, Elsevier, vol. 77(2), pages 343-377, April.
    14. Harrison Hong & Jiang Wang, 2000. "Trading and Returns under Periodic Market Closures," Journal of Finance, American Finance Association, vol. 55(1), pages 297-354, February.
    15. Demiralp, Selva & Preslopsky, Brian & Whitesell, William, 2006. "Overnight interbank loan markets," Journal of Economics and Business, Elsevier, vol. 58(1), pages 67-83.
    16. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    17. Brock, William A. & Kleidon, Allan W., 1992. "Periodic market closure and trading volume : A model of intraday bids and asks," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 451-489.
    18. Ken B. Cyree & Mark D. Griffiths & Drew B. Winters, 2003. "On the pervasive effects of Federal Reserve settlement regulations," Review, Federal Reserve Bank of St. Louis, vol. 85(Mar), pages 27-46.
    19. Lee, Young-Sook, 2003. "The Federal funds market and the overnight Eurodollar market," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 749-771, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fukuda, Shin-ichi, 2012. "Market-specific and currency-specific risk during the global financial crisis: Evidence from the interbank markets in Tokyo and London," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3185-3196.
    2. Linda S. Goldberg & Michael W. Klein, 2005. "Establishing Credibility: Evolving Perceptions of the European Central Bank," NBER Working Papers 11792, National Bureau of Economic Research, Inc.
    3. Fassas, Athanasios P., 2021. "Price discovery in US money market benchmarks: LIBOR vs. SOFR," Economics Letters, Elsevier, vol. 204(C).
    4. R. Spence Hilton & Warren B. Hrung, 2007. "Reserve levels and intraday federal funds rate behavior," Staff Reports 284, Federal Reserve Bank of New York.
    5. Bartolini, Leonardo & Hilton, Spence & McAndrews, James J., 2010. "Settlement delays in the money market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 934-945, May.
    6. Roc Armenter & Benjamin Lester, 2015. "Excess reserves and monetary policy normalization," Working Papers 15-35, Federal Reserve Bank of Philadelphia.
    7. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
    8. Xu, Xiaoqing Eleanor, 2021. "Dissecting the segmentation of China's repo markets," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    9. Roc Armenter & Benjamin Lester, 2017. "Excess Reserves and Monetary Policy Implementation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 212-235, January.
    10. Lawrence L Kreicher & Robert N McCauley & Patrick McGuire, 2013. "The 2011 FDIC assessment on banks managed liabilities: interest rate and balance-sheet responses," BIS Working Papers 413, Bank for International Settlements.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fatima Sol Murta, 2007. "The Money Market Daily Session :an UHF-GARCH Model Applied to the Portuguese Case Before and After the Introduction Of the Minimum Reserve System of the Single Monetary Policy," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(3), pages 285-314.
    2. Demiralp, Selva & Preslopsky, Brian & Whitesell, William, 2006. "Overnight interbank loan markets," Journal of Economics and Business, Elsevier, vol. 58(1), pages 67-83.
    3. Vladimir Kotomin & Drew Winters, 2006. "Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(1), pages 61-82, February.
    4. Prati, Alessandro & Bartolini, Leonardo & Bertola, Giuseppe, 2003. "The overnight interbank market: Evidence from the G-7 and the Euro zone," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 2045-2083, October.
    5. Bartolini, Leonardo & Prati, Alessandro, 2006. "Cross-country differences in monetary policy execution and money market rates' volatility," European Economic Review, Elsevier, vol. 50(2), pages 349-376, February.
    6. Kotomin, Vladimir & Winters, Drew B., 2007. "The impact of the return to lagged reserve requirements on the federal funds market," Journal of Economics and Business, Elsevier, vol. 59(2), pages 111-129.
    7. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2002. "Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 137-159, February.
    8. Demiralp, Selva & Farley, Dennis, 2005. "Declining required reserves, funds rate volatility, and open market operations," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1131-1152, May.
    9. Emilio Barucci & Claudio Impenna & Roberto Reno, 2003. "The Italian Overnight Market: Microstructure Effects, the Martingale Hypothesis and the Payment System," CEIS Research Paper 24, Tor Vergata University, CEIS.
    10. Leonardo Bartolini & Alessandro Prati, 2003. "The execution of monetary policy: a tale of two central banks [‘Estimating continuous-time stochastic volatility models of the short-term interest rate’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 435-467.
    11. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
    12. Gaspar, Vitor & Pérez-Quirós, Gabriel & Rodriguez Mendizabal, Hugo, 2004. "Interest Rate Determination in the Interbank Market," CEPR Discussion Papers 4516, C.E.P.R. Discussion Papers.
    13. Silvio Colarossi & Andrea Zaghini, 2009. "Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission," International Finance, Wiley Blackwell, vol. 12(2), pages 151-170, August.
    14. Beaupain, Renaud & Durré, Alain, 2013. "Central bank reserves and interbank market liquidity in the euro area," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 259-284.
    15. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2001. "Banks' reserve management, transaction costs, and the timing of Federal Reserve intervention," Journal of Banking & Finance, Elsevier, vol. 25(7), pages 1287-1317, July.
    16. Benito, Francis & Leon, Angel & Nave, Juan, 2007. "Modeling the Euro overnight rate," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 756-782, December.
    17. Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The microstructure of the euro money market," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 895-948, November.
    18. Palombini, Edgardo, 2003. "Volatility and liquidity in the Italian money market," MPRA Paper 42699, University Library of Munich, Germany.
    19. Nathan Porter & TengTeng Xu, 2016. "Money-Market Rates and Retail Interest Regulation in China: The Disconnect between Interbank and Retail Credit Conditions," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 143-198, March.
    20. Carla Soares & Paulo M. M. Rodrigues, 2013. "Determinants of the EONIA Spread and the Financial Crisis," Manchester School, University of Manchester, vol. 81, pages 82-110, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:40:y:2008:i:1:p:193-213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.