Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

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

Massimiliano Marzo () and Paolo Zagaglia ()
Additional contact information
Massimiliano Marzo: Università di Bologna, Postal: Department of Economics, Università di Bologna, Strada Maggiore, 45 Bologna, Italy
Paolo Zagaglia: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

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

JEL-codes: C22; E58

14 pages, February 15, 2009

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