Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152669
Authors: 
Cassola, Nuno
Morana, Claudio
Year of Publication: 
2003
Series/Report no.: 
ECB Working Paper 235
Abstract: 
This paper estimate the factors underlying the volatility of the euro overnight interest rate and its transmission along the euro area money market yield curve. A new multivariate unobserved components model is proposed allowing for both long-memory and stationary cyclical dynamics. Using hourly data the estimates show repetitive intradaily and monthly patterns that can be explained by the microstructure of the money market and the institutional features of the Eurosystem's operational framework for monetary policy implementation. Strong persistence is dedected in all log-volatility processes and two common long-memory factors are extracted. The first factor explains the long-memory dynamics of the shortest maturity. The second factor explains the transmission of volatility along the money market yield curve. We find evidence that most liquidity effects are cyclical, confined to the ned of reserve maintenance periods, and are not transmitted along the money market yield curve.
Subjects: 
fractional integration and cointegration
liquidity effect
money market interest rates
Money market microstructure
stochastic volatility
JEL: 
C32
E43
F30
G10
Document Type: 
Working Paper

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