Research Discussion Papers, Bank of Finland
No 23/2008:
Money-market segmentation in the Euro area: what has changed during the turmoil?
Paolo Zagaglia ()
Abstract: In this paper we study how the pattern of segmentation in
the euro area money market has been affected by the recent turmoil in
financial markets. We use nonparametric estimates of realized volatility to
test for volatility spillovers between rates at different maturities. For
the pre-turmoil period, exogeneity tests from VAR models suggest the
presence of a transmission channel from longer maturities to the overnight.
This disappears in the subsample starting in August 9 2007. The results of
the semiparametric tests of Cappiello, Gerard and Manganelli (2005) report
evidence of an increase in volatility contagion within the longer end of
the money market curve. However this takes place in the lower tail of the
empirical distributions.In this paper we study how the pattern of
segmentation in the euro area money market has been affected by the recent
turmoil in financial markets. We use nonparametric estimates of realized
volatility to test for volatility spillovers between rates at different
maturities. For the pre-turmoil period, exogeneity tests from VAR models
suggest the presence of a transmission channel from longer maturities to
the overnight. This disappears in the subsample starting in August 9 2007.
The results of the semiparametric tests of Cappiello, Gerard and Manganelli
(2005) report evidence of an increase in volatility contagion within the
longer end of the money market curve. However this takes place in the lower
tail of the empirical distributions.
Keywords: money market; high-frequency data; time-series methods; (follow links to similar papers)
JEL-Codes: C32; E43; E58; (follow links to similar papers)
33 pages, October 20, 2008
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