() and Paolo Zagaglia
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.
14 pages, February 15, 2009
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