The intraday interest rate under a liquidity crisis: The case of August 2007

Baglioni, Angelo; Monticini, Andrea

doi:10.1016/j.econlet.2010.01.023

Cited by 27 publications

(17 citation statements)

References 13 publications

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“…Comparing these findings with previous studies, we see that our intraday interest rate is smaller than the rate found in unsecured markets during crisis times. For instance, Baglioni and Monticini () find a 4.8 basis point and a 52.8 basis point daily annualized rate in the Italian unsecured money market (e‐MID) for the July/August 2007 and September/October 2007 periods, respectively. Jurgilas and Zikes () find a 2.4 basis point and a 45.6 basis point daily annualized rate in the unsecured UK money market covering the 2006–07 period and the 2007–09 financial crisis, respectively, while Kraenzlin and Nellen () document a daily annualized rate of 10.8 basis points for the Swiss money market for 1999–2009.…”

Section: Empirical Approach and Resultsmentioning

confidence: 99%

“…The empirical literature on intraday interest rates is dominated by data on unsecured interbank markets. While Angelini () finds only a negligible intraday pattern in the unsecured Italian interbank market e‐Mid, Baglioni and Monticini ( and ) estimate strong intraday patterns in this market that are more pronounced in the period after the start of the financial crisis in August 2007. Furfine () reports a positive intraday interest rate in the U.S. federal funds market, while Jurgilas and Zikes () show for the unsecured interbank market in the UK that intraday rates increased during the crisis and that loan repayment was delayed.…”

Section: Related Literaturementioning

confidence: 99%

“…Recent studies find that interest rates in the interbank money market are higher in the morning than during the afternoon, implying a positive intraday interest rate, which is assumed to be related to counterparty risk (Baglioni and Monticini , , and ), the opportunity cost of collateral (Jurgilas and Zikes ), and settlement pressure in RTGS systems (Kraenzlin and Nellen ). But theory predicts not only nonzero intraday interest rates as a cause of collateral constraints and counterparty risk (Kahn and Roberds , Bech and Garratt ) but also in response to variations of market liquidity (Angelini , Baglioni and Monticini ).…”

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confidence: 99%

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Variations in Market Liquidity and the Intraday Interest Rate

Abbassi¹,

Fecht²,

Tischer³

2017

J of Money Credit Banking

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Most central banks offer banks participating in large‐value real‐time gross settlement (RTGS) systems a free intraday overdraft facility to discourage banks from actively managing their daylight liquidity. In this paper, we ask whether this facility has kept the intraday interest rate at zero. Using a unique transaction‐level data set on collateralized interbank loans for 2006–12, we find that during periods of financial distress, rates for morning transactions are higher than those in the afternoon. Moreover, this intraday rate correlates with market liquidity, suggesting that rates contain a liquidity premium. This intraday pattern is reduced, but not eliminated by the Eurosystem's accommodative liquidity provision.

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Section: Empirical Approach and Resultsmentioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

mentioning

confidence: 99%

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Variations in Market Liquidity and the Intraday Interest Rate

Abbassi¹,

Fecht²,

Tischer³

2017

J of Money Credit Banking

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“…Furfine (2001) and Baglioni and Monticini (2008, 2010) show evidence that overnight interbank rates have an expected decline during the day, particularly during a liquidity crisis, which can be explained by either the liquidity costs on required collateral or the explicit fees for banks to borrow intraday liquidity from the central bank. Our model abstracts from these costs.…”

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confidence: 99%

Precautionary Reserves and the Interbank Market

Ashcraft

McAndrews

Skeie

2011

J of Money Credit Banking

161

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractLiquidity hoarding by banks and extreme volatility of the fed funds rate have been widely seen as severely disrupting the interbank market and the broader financial system during the 2007-08 financial crisis. Using data on intraday account balances held by banks at the Federal Reserve and Fedwire interbank transactions to estimate all overnight fed funds trades, we present empirical evidence on banks' precautionary hoarding of reserves, their reluctance to lend, and extreme fed funds rate volatility. We develop a model with credit and liquidity frictions in the interbank market consistent with the empirical results. Our theoretical results show that banks rationally hold excess reserves intraday and overnight as a precautionary measure against liquidity shocks. Moreover, the intraday fed funds rate can spike above the discount rate and crash to near zero. Apparent anomalies during the financial crisis may be seen as stark but natural outcomes of our model of the interbank market. The model also provides a unified explanation for several stylized facts and makes new predictions for the interbank market.

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“…The objects of interest are credits with shorter maturity than one day. Baglioni and Monticini (2010) redo this analysis for 2007, using hourly means, to compare the intraday curve before and after the outbreak of the financial crisis. They find some clear signals for a downward trend of the intraday interest rate especially after the outbreak of the financial crisis in 2007.…”

Section: Introductionmentioning

confidence: 99%

Empirical Estimation of Intraday Yield Curves on the Italian Interbank Credit Market e-MID

Demertzidis

Jeleskovic

2021

JRFM

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This paper introduces a major novelty: the empirical estimation of spot intraday yield curves based on tick-by-tick data on the Italian electronic interbank credit market (e-MID). To analyze the consequences of the recent financial crisis, we split the data into four periods, which include events before, during, and after the recent financial crisis starting in 2007. Our first result is that, from a practical point of view, the intraday yield curve can be modeled by standard models for yield curves providing advantages for intraday trading on intraday interbank credit markets. Moreover, the estimates show that the systematic dynamics in the intraday yield curves during the turmoil were highly noticeable, resulting in a significantly better goodness-of-fit. Based on this fact, we infer that investors in the interbank credit market base their investment decisions on the effects of the intraday dynamics of intraday interest rates more intensively during a financial crisis. Therefore, the systematic impact on the e-MID appears to be stronger and econometric modeling of the intraday interest rate curve becomes even more attractive during a turmoil.

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The intraday interest rate under a liquidity crisis: The case of August 2007

Cited by 27 publications

References 13 publications

Variations in Market Liquidity and the Intraday Interest Rate

Variations in Market Liquidity and the Intraday Interest Rate

Precautionary Reserves and the Interbank Market

Empirical Estimation of Intraday Yield Curves on the Italian Interbank Credit Market e-MID

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