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Money Market Integration
Author(s) -
BARTOLINI LEONARDO,
HILTON SPENCE,
PRATI ALESSANDRO
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00109.x
Subject(s) - eurodollar , federal funds , monetary economics , market liquidity , liberian dollar , volatility (finance) , libor , business , market segmentation , economics , financial system , financial economics , monetary policy , finance , interest rate , marketing
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.