Volatility transmission along the money market yield curve

Ayuso, Juan Francisco Rodríguez; Haldane, Andrew; Restoy, Fernando

doi:10.1007/bf02707676

Cited by 32 publications

(36 citation statements)

References 13 publications

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“…It is evident that the volatility has decreased in the second half of the sample (after the break), especially in the overnight markets. Also note that, consistently with the findings of Ayuso et al (1997) for some European countries and Alonso and Blanco (2005) for the Euro Area, the U-shaped pattern of the volatility across maturities up to 12 months is maintained, while the curve exhibits an overall snake-shaped behaviour due to the reduction of volatility at the 10-year horizon (Piazzesi, 2005). Needless to say, the aspect we would like to assess is whether the volatility transmission from the money market has changed after the break in the overnight volatility level.…”

Section: A Structural Break Testsupporting

confidence: 89%

“…This procedure implicitly assumes that overnight volatility is not Granger-caused by longer-term interest rate innovations and thus that the transmission may go in one direction only (Ayuso et al;. In addition, the conditional variance is introduced as an explanatory variable also in the mean equation of each maturity date to check for a possible direct effect of the volatility on the level of interest rates.…”

Section: Volatility Transmissionmentioning

confidence: 99%

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Gradualism, Transparency and the Improved Operational Framework: A Look at the Overnight Volatility Transmission

Colarossi

Zaghini

2009

SSRN Journal

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Section: A Structural Break Testsupporting

confidence: 89%

Section: Volatility Transmissionmentioning

confidence: 99%

Gradualism, Transparency and the Improved Operational Framework: A Look at the Overnight Volatility Transmission

Colarossi

Zaghini

2009

SSRN Journal

View full text Add to dashboard Cite

“…This procedure implicitly assumes that overnight volatility is not Granger-caused by longer-term interest rate innovations and thus that the transmission may go in one direction only (Ayuso et al;. In addition, the conditional variance is introduced as explanatory variable also in the mean equation of each maturity to check for a possible direct effect of the volatility on the level of interest rates.…”

Section: Volatility Transmissionmentioning

confidence: 99%

Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission^*

Colarossi

Zaghini

2009

International Finance

192

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The paper proposes a possible way of assessing the effect on interest rate dynamics of changes in the decision-making approach, in the communication strategy and in the operational framework of a Central bank. Through a GARCH specification we show that USA and Euro area displayed a limited but significant spillover of volatility from money market to longer-term rates. We then checked the stability of this phenomenon in the most recent period of improved policymaking and found empirical evidence that the transmission of overnight volatility along the yield curve vanished soon after specific policy changes of the FED and ECB.

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“…Finally, Ayuso, Haldane, and Restoy (1997) provide indirect evidence in favor of the hypothesis that reserve requirements stabilize interest rate volatility. They observe that countries with higher reserve requirements tend to have a lower volatility of short-term interest rates.…”

Section: Reserve Requirements and Interest Rate Volatilitymentioning

confidence: 85%

Monetary policy implementation and the federal funds rate

Nautz¹,

Schmidt

2009

Journal of Banking & Finance

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08025.pdf By contrast, the declining trend in required reserves has increased interest rate volatility in the U.S. Paying interest on reserves as it is planned from 2011 onwards shall broaden the reserve base and consequently increase reserve requirements. As a consequence, our empirical findings suggest that the planned introduction of remunerated reserves will decrease the volatility of the federal funds rate in a significant way. Abstract This paper investigates how the implementation of monetary policy affects the dynamics and the volatility of the federal funds rate. Since the early 1980s, the most important changes in the Fed's conduct of monetary policy refer to the role of the federal funds rate target and the reserve requirement system. We show that the improved communication and transparency regarding the federal funds rate target has significantly increased the Fed's influence on the federal funds rate since 1994. By contrast, the declining role of required reserves in the U.S. has contributed to higher federal funds rate volatility. Our results suggest that the planned introduction of remunerated reserves will further enhance the controllability of the federal funds rate. Non-Technical SummaryKeywords: Dynamics and Volatility of the Federal Funds Rate, Monetary Policy Implementation, Central Bank Communication, Reserve Requirements JEL classification: E43, E52, C22 * We thank Jan Scheithauer for helpful comments and suggestions. Financial support by the Deutsche Forschungsgemeinschaft (DFG) through NA-385/4-1 is gratefully acknowledged.

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Volatility transmission along the money market yield curve

Abstract: E52,

Cited by 32 publications

References 13 publications

Gradualism, Transparency and the Improved Operational Framework: A Look at the Overnight Volatility Transmission

Gradualism, Transparency and the Improved Operational Framework: A Look at the Overnight Volatility Transmission

Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission^*

Monetary policy implementation and the federal funds rate

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Volatility transmission along the money market yield curve

Abstract: E52,

Cited by 32 publications

References 13 publications

Gradualism, Transparency and the Improved Operational Framework: A Look at the Overnight Volatility Transmission

Gradualism, Transparency and the Improved Operational Framework: A Look at the Overnight Volatility Transmission

Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission*

Monetary policy implementation and the federal funds rate

Contact Info

Product

Resources

About

Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission^*