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Volatility in the Euro area money market: effects from the monetary policy operational framework
Author(s) -
Durré Alain,
Nardelli Stefano
Publication year - 2008
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.361
Subject(s) - volatility (finance) , interest rate , economics , monetary economics , univariate , monetary policy , money market , overnight rate , implied volatility , econometrics , multivariate statistics , central bank , quantitative easing , mathematics , statistics
This paper deals with the evolution of the realized volatility of the overnight interest rates in the Euro area money market using intraday data. It analyses in particular the pattern of the volatility of the overnight interest rate before and after the introduction of the structural changes to the Eurosystem's operational framework in March 2004. Using univariate and multivariate regressions, the results suggest that the level of the volatility of the overnight interest rate has significantly decreased after March 2004, whereas the sensitivity of the overnight interest rate has increased, especially over the last days of the reserve maintenance periods. Moreover, there is no evidence according to which the volatility of the overnight interest rate is transmitted to the volatility of money market interest rates at longer maturities. Copyright © 2007 John Wiley & Sons, Ltd.