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Determinants of the EONIA Spread and the Financial Crisis
Author(s) -
Soares Carla,
Rodrigues Paulo M. M.
Publication year - 2013
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12010
Subject(s) - economics , market liquidity , volatility (finance) , heteroscedasticity , allotment , financial crisis , autoregressive model , monetary economics , monetary policy , interest rate , autoregressive conditional heteroskedasticity , econometrics , financial economics , macroeconomics , market economy
To understand the impact of the 2007–9 financial crisis, we model the E uro overnight interest rate average ( EONIA ) spread against the main reference rate as an exponential general autoregressive conditional heteroskedastic ( EGARCH ) model. Before the fixed rate full allotment policy of the E uropean C entral B ank ( ECB ) (period 2004–8), we follow a two regime approach, however afterwards (2008–9), a conventional EGARCH seems more adequate. The results suggest a greater difficulty during the turmoil for the ECB to steer the EONIA spread. The liquidity policy and in particular the provision of long‐term liquidity was effective in reducing market volatility.