Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153137
Authors: 
Cassola, Nuno
Morana, Claudio
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 703
Abstract: 
This paper assesses the sources of volatility persistence in Euro Area money market interest rates and the existence of linkages relating volatility dynamics. The main findings of the study are as follows. Firstly, there is evidence of stationary long memory, of similar degree, in all series. Secondly, there is evidence of fractional cointegration relationships relating all series, except the overnight rate. Two common long memory factors are found to drive the temporal evolution of the volatility processes. The first factor shows how persistent volatility shocks are trasmitted along the term structure, while the second factor points to excess persistent volatility at the longer end of the yield curve, relative to the shortest end. Finally, impulse response analysis and forecast error variance decomposition point to forward transmission of shocks only, involving the closest maturities.
Subjects: 
fractional integration and cointegration
fractional vector error correction model
liquidity e¤ect
money market interest rates
realized volatility
JEL: 
C32
F30
G10
Document Type: 
Working Paper

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