Monetary policy implementation and overnight rate persistence

Nautz, Dieter; Scheithauer, Jan

doi:10.1016/j.jimonfin.2011.07.005

Cited by 21 publications

(22 citation statements)

References 28 publications

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“…Central banks influence money market interest rates through their deposit and lending rates and by regulating the liquidity stance in the money markets; see e.g. Nautz and Scheithauer (2009). Information about actual interest rates is also of interest from a financial stability perspective; see e.g.…”

Section: Introductionmentioning

confidence: 99%

Norwegian Overnight Interbank Interest Rates

Akram¹,

Christophersen²

2011

Comput Econ

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Section: Introductionmentioning

confidence: 99%

Norwegian Overnight Interbank Interest Rates

Akram¹,

Christophersen²

2011

Comput Econ

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“…For its part, Cossetti and Guidi (2009) denote that the actions of the ECB in monetary policy do not have substantial effects on the yield curve. Tobias Linzert and Sandra Schmidt (2011) analyse how a reduction in liquidity could alleviate pressure on the Eonia spread according to the monetary policy designed, and Nautz and Scheithauer (2011) indicate that the monetary policy design determines the strength of the relation between the overnight rate and the central bank's policy rate. In this line of research, the linkage among short-term interbank interest rates in European banks, i.e., the Eonia and the 3-month Euribor rates, to study the persistence of the spread due to the importance of market expectations of the European monetary policy attitude in the near future, has been recently established by Ansgar Belke, Joscha Beckmann, and Florian Verheyen (2013).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Indeed, Ben S. Bernanke and Alan S. Blinder (1992) supported that this relationship between shortand longer-term interest rates implies that their spread contains significant information on future changes in short-term rates and plays an important role in the potential effectiveness of monetary policy. Filippo Cossetti and Francesco Guidi (2009) denote that the actions of the European Central Bank (ECB) in monetary policy do not have substantial effects on the yield curve, and Dieter Nautz and Jan Scheithauer (2011)…”

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confidence: 99%

The role of Eonia in the dynamics of short-term interbank rates

2020

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To signal monetary policies and market expectations, we apply a fractionally cointegrated vector autoregressive (FCVAR) model, aiming to analyse the expectations hypothesis of term structure (EHTS), persistence in the Euro OverNight Index Average (Eonia) spread and permanent-transitory decomposition using a novel approach. We use a monthly frequency sample for the 3month Euribor rate and Eonia rate, covering the period from January 1999 to February 2019. The results obtained confirm the EHTS and show evidence of a high persistence of the spread, which means that shocks may impede effectiveness in monetary policy and that the European Central Bank (ECB) loses control over interest rates. Additionally, according to permanent-transitory decomposition, we determine that the Eonia rate has a permanent component and thus dominates the common trend in the cointegration system. In sum, if the ECB wants to keep the interbank market interest rates under control, it must contemplate the evolution of the Eonia rate.

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“…First, there is a growing empirical literature on the dynamics and the volatility of overnight rates. Recent examples include Bartolini and Prati (2006), Pérez Quirós and Rodríguez Mendizábal (2006), Colarossi and Zaghini (2009), and Nautz and Scheithauer (2011. All these contributions investigate how distinguishing features of the central bank's operational framework influence the behavior of overnight rates.…”

Section: List Of Tablesmentioning

confidence: 99%

Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations

Abbassi¹,

Nautz²

2012

The North American Journal of Economics and Finance

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The Eurosystem's main refinancing operations (MRO) are key for the interbank money market and the monetary transmission process in the euro area. This paper investigates how money market rates respond to the information revealed by various aspects of an MRO auction outcome. Our results confirm that the level of MRO rates governed short-term money market rates before the financial crisis. Since the start of the financial crisis, however, the information content of MRO rates has changed. While the levels of MRO rates have lost much of their pre-crisis significance, the spread between the weighted average and the marginal MRO rate has become an important barometer for the actual situation in the money market during the crisis.Keywords: Monetary Policy Implementation; Central bank auctions; European Central Bank; Money markets and Financial Crisis; JEL classification: E43; E52; E58; D44 Non-technical SummaryThe relation between the Eurosystem's main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. The liquidity supply through MROs should ensure that short-term money market rates closely follow the MRO rates and that their volatility remains well contained. This central aim of monetary policy implementation has never been an easy task. Even before the financial crisis, a puzzling and unintended upward trend in the spread between the European overnight rate (Eonia) and the MRO rates indicated that the monetary transmission mechanism is not sufficiently understood. Since the start of the financial crisis, spreads between the ECB's main refinancing rates and the money market rates have been huge and persistent. In order to shed more light on the very beginning of the monetary transmission process in the euro area, this paper investigated how money market rates respond to new information revealed by an MRO auction outcome before and during the financial crisis.Our results show that the financial crisis changed the information content of MRO auctions in two important ways. First, we find that the information contained in the levels of the MRO rates has significantly declined since the outbreak of the crisis in

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Monetary policy implementation and overnight rate persistence

Cited by 21 publications

References 28 publications

Norwegian Overnight Interbank Interest Rates

Norwegian Overnight Interbank Interest Rates

The role of Eonia in the dynamics of short-term interbank rates

Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations

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