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Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission *
Author(s) -
Colarossi Silvio,
Zaghini Andrea
Publication year - 2009
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/j.1468-2362.2009.01241.x
Subject(s) - economics , volatility (finance) , heteroscedasticity , autoregressive conditional heteroskedasticity , econometrics , spillover effect , monetary economics , autoregressive model , transparency (behavior) , financial economics , macroeconomics , computer science , computer security
This paper proposes a possible way of assessing the effect on interest rate dynamics of changes in the decision‐making method, in the communication strategy and in the operational framework of a central bank. Through a generalized autoregressive conditional heteroscedasticity (GARCH) specification, we show that the United States and the euro area displayed a limited but significant spillover of volatility from money market to longer‐term rates. We then checked the stability of this phenomenon in the most recent period of improved policy‐making and found empirical evidence to show that the transmission of overnight volatility along the yield curve had entirely disappeared.