Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152873
Authors: 
Brousseau, Vincent
Manzanares, Andrés
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper 439
Abstract: 
This paper studies frictions in the euro area interbank deposit overnight market, making use of high frequency individual quote and trade data. The aim of the analysis is to determine, in a quantitative way, how efficient this market is. Besides a comprehensive descriptive analysis, the approach used defines a measure of the friction arising for each single transaction, by which we understand an (small) initial loss accepted by a counterparty, and the corresponding gain made by the other counterparty. The evolution of total daily frictions is then put into perspective comparing it with the frictions arising if flows corresponded to the optimal solution of a “cash transportation problem”. The main conclusions of this exercise are that overall frictions, although small in absolute size, tend to increase strongly whenever the overnight rate becomes volatile. Some tentative explanations for this are given, relying on the introduced methodology.
Subjects: 
Financial market microstructure
Market friction
money market
Network optimization problems
JEL: 
D4
E52
C61
Document Type: 
Working Paper

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