Controllability and persistence of money market rates along the yield curve: evidence from the euro area

Ulrike Busch and Dieter Nautz

No 2009/5, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: Controllability of longer-term interest rates requires that the persistence of their deviations from the central bank's policy rate (i.e. the policy spreads) remains sufficiently low. This paper applies fractional integration techniques to assess the persistence of policy spreads of euro area money market rates along the yield curve. Independently from anticipated policy rate changes, there is strong evidence for all maturities that policy spreads exhibit long memory. We show that recent changes in the operational framework and the communication strategy of the European Central Bank have significantly decreased the persistence of euro area policy spreads and, thus, have enhanced the central bank's in influence on longer-term money market rates.

Keywords: Long memory and fractional integration; controllability and persistence of interest rates; new operational framework of the ECB (search for similar items in EconPapers)
JEL-codes: C22 E43 E52 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area (2010)
Journal Article: Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:20095

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