Nonlinear adjustment between the Eonia and Euribor rates: a two-regime threshold cointegration analysis

Tamakoshi, Go; Hamori, Shigeyuki

doi:10.1080/09603107.2013.868586

Cited by 4 publications

(8 citation statements)

References 11 publications

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“…Thus, movements in the Eonia rate can precipitate a change in the 3-month Euribor rate until a new common trend is established. This finding conforms to previous empirical findings proposed by Cossetti and Guidi (2009) and Tamakoshi and Hamori (2014), who support the existence of a long-run relationship between both interest rates.…”

Section: =supporting

confidence: 93%

“…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). Furthermore, according to Go Tamakoshi and Shigeyuki Hamori (2014), the Eonia rate plays a crucial role in signalling the target of monetary policy, while the Euribor rate provides outstanding interest rates for various financial products, i.e., the 3-month Euribor rate is used because it has been a focus in recent studies of interbank money markets. Finally, Achim Hauck and Ulrike Neyer (2014) explain how the Eurosystem's liquidity measures to reactivate the interbank market could conflict with aims from the monetary policy perspective and financial stability perspective.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The data are collected from the Eurostat (2017) 1 website. First, it should be noted that these interest rates were chosen because, following the study by Tamakoshi and Hamori (2014), on the one hand, the ECB Governing Council is responsible for regulating the official interest rates in the Eurozone, which operates as a benchmark for interbank market interest rates. This agrees with the first step of the monetary policy transmission mechanism (Cossetti and Guidi 2009).…”

Section: Data and Econometric Approachmentioning

confidence: 99%

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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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Section: =supporting

confidence: 93%

Section: Literature Reviewmentioning

confidence: 99%

Section: Data and Econometric Approachmentioning

confidence: 99%

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

2020

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“…Abbassi and Linzert (2012) suggest that non-standard monetary policy measures help to lower Euribor rates. Tamakoshi and Hamori (2014) in studying EONIA and the 3-month Euribor rate relations found the best model to be a two-regime threshold cointegration with regimedependent short-run dynamics Baumeister and Benati (2010) explore the macroeconomic impact of a compression in the long-term bond yield spread within the context of the Great Recession of 2007-2009 via a Bayesian time-varying parameter structural VAR. They identify a 'pure' spread shock that leaves the policy rate unchanged on impact.…”

Section: Literature Reviewmentioning

confidence: 99%

The European Central Bank Quantitative Policy and Its Consistency with the Demand for Liquidity

Hlebik¹,

Verga²

2015

Annals of the Alexandru Ioan Cuza University - Economics

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In 2008 the European Central Bank added a new quantitative policy strategy to its traditional control of the interest rates. This new policy, sometimes called “enhanced credit support”, consists of fully satisfying the demand for liquidity of banks, with the European Central Bank deciding only the timing and characteristics of its interventions. This study analyses the market conditions in which these measures have been taken and their consistency with the demand for liquidity by the banking system. Measures in favour of the sovereign debt of PIIGS countries are also considered.

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“…Cossetti and Guidi (2009) denote that the actions of the European Central Bank (ECB) in monetary policy do not have substantial impacts on the yield curve; Nautz and Scheithauer (2011) also indicate that the monetary policy design determines the strength of the relationship between the overnight rate and the central bank's policy rate. Finally, Tamakoshi and Hamori (2014) reject the presence of linearity in the Eonia-3-month Euribor rate relationship.…”

Section: Introductionmentioning

confidence: 92%

Essays in financial econometrics : long-run, persistence and common trends

González¹

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This thesis recognizes that the premises of standard cointegration (I (1)/I (0) dichotomy) are too restrictive. In this sense, the empirical literature has shown that many economic and financial time series hold long-range dependence in the autocorrelation function but do not precisely exhibit a unit root process, i.e., the long memory process. For this reason, traditional cointegration assumptions that the time series may follow the dichotomy I (0)/I (1) are discard, in favour that they follow a fractional process I (d). We also shed the notion that the error term follows a stationary process (I (0)) in cases of cointegration of both variables. In turn, the rigidity of the traditional approach is overcome in favour of allowing for the series to be cointegrated, and the error term does not necessarily need to be I (0); for example, the error term may be cointegrated in order I(d − b), unlike other techniques that assume the error term is I (0). In this sense, the Fractionally Cointegrated Vector Autorregressive (FCVAR) model is an expansion of the traditional cointegrated VAR (CVAR) model, and it allows to determine the number of equilibrium relations via cointegrating rank testing to estimate memory parameters, long-run cointegrating relations with adjustment parameters, and short-run lagged dynamics. To this end, in the current dissertation, we develop empirical analysis to demonstrate the properties of the time series under the fractional cointegration assumptions. In chapters 2 and 3 we consider the cointegrating relation and adjustment dynamics amongst four major stock markets for the Eurozone, and the five major stock markets for Latin America, respectively. The results evidence that there is a full financial integration in both economic regions, despite of the financial crisis occurred in recent years (this case is studied in chapter 2). The following 4 chapters are devoted to study the term structure of interest rates. Indeed, we summarize an empirical review of the Expectations Hypothesis of the Term Structure (EHTS) aiming to establish the adequate procedures for its measurement by using time series and evidencing the linearity restrictions associated with the traditional approaches used in time series applications on term structure (chapter 4). Furthermore, it is also analyzed the relationship between the European Over Night Index Average (Eonia) rate and 3-month Euribor rate (chapter 5). In chapter 6, we apply a pairwise estimation to a wide sample consisting on 9 different maturities of Treasury Constant interest rates. Otherwise, in chapter 7, we use two historical databases for the USA in order to check the behavior of short- and long-term interest rates. In this four chapters, we demonstrate the fractional properties of the cointegrating relations subject to the EHTS conditions. Additionally, we study how the spread is resulting both interest rates, jointly, analyzing the long memory in the spread that has implications for the monetary transmission mechanism and its effectiveness. In chapter 8, the US debt sustainability is analyzed taking into account the Intertemporal Budget Constraint conditions. We propose different scenarios in which the deficit, i.e., the difference between revenues and expenditures, possess different features, providing significant implications for policy makers. Then, the dominance between revenues and expenditures in the common trend is shown. Finally, in chapter 9, concerning the crude oil market, we test if the relationship between West Texas Intermediate and Brent crude oil is globalized or regionalized. Besides, the difference between both crude oils may be an indicator of forecasting, depending the value of its degree of integration and to finish, the driver of the relationship is defined, which may be an indicator for business operators, arbitrageurs, economic agents and policy makers.

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Nonlinear adjustment between the Eonia and Euribor rates: a two-regime threshold cointegration analysis

Cited by 4 publications

References 11 publications

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

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

The European Central Bank Quantitative Policy and Its Consistency with the Demand for Liquidity

Essays in financial econometrics : long-run, persistence and common trends

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