Autori
Morana, Claudio
Cassola, Nuno

Titolo
Volatility of Interest Rates in the Euro Area: Evidence from High Frequency Data
Periodico
Università degli Studi del Piemonte Orientale 'A. Avogadro' : Facoltà di Economia - Dipartimento di Scienze Economiche e Metodi Quantitativi "SEMEQ" - Quaderni
Anno: 2003 - Volume: 03 - Fascicolo: 55 - Pagina iniziale: 1 - Pagina finale: 53

The paper studies the euro area money market from a microstruc-ture perspective. The focus is on the empirical estimation of the factors underlying the volatility of the overnight interest rate and its transmission along the money market yield curve. We separate out two sources of volatility, one related to the institutional features of the operational framework and payments system, and the other, related to the impact of policy decisions. We use a novel data set composed of hourly observations and covering several short-term interest rates. The sample runs from 4/12/2000 through 31/05/2002, for a total of 3510 hourly observations, or 390 working days. For the purpose of estimation we introduce a common long memory factor model augmented with a stochastic cyclical component. The model is suited to capture the long-run volatility dynamics and the intradaily repetitive patterns, which can be explained by the microstructure of the money market. Strong persistence is detected in the volatility processes, pointing to a moderate degree of long-memory. We find that two common long-memory factors drive the volatility processes. The first explains the long-memory dynamics of the shortest maturity. The other explains the transmission of volatiliy to other maturities. We show that the announcement of interest rate changes exercise the strongest impact on the volatility of the shortest maturities. We are also able to document persistent effects of liquidity shortages that are transmitted along the money market yield curve. However, these effects are not the rule and can be explained by exceptional circumstances. In general, liquidity effects are found to be cyclical and thus, short-lived, confined to the end of maintenance periods and not transmitted along the money market yield curve.



Testo completo: http://www.eco.unipmn.it/biblioteca/pdf/semeq/semeq55.pdf

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