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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2009:8:
A Further Look at the 2004 Reform of the Operational Framework of the ECB

Massimiliano Marzo () and Paolo Zagaglia ()

Abstract: This note reconsiders the impact of the reform of the operational framework of the European Central Bank that took place in March 2004. We estimate a bivariate GARCH model with the overnight rate and 1-year swap rate, where identifying restrictions are imposed on the conditional variance. Differently from previous studies, we use a measure of structural correlation to show that the 1-year swap segment has decoupled from the overnight rate as the two rates do not co-vary any longer.

Keywords: Money Market; Multivariate GARCH; Structural Identification; (follow links to similar papers)

JEL-Codes: C22; E58; (follow links to similar papers)

14 pages, February 15, 2009

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