Monetary policy implementation and overnight rate persistence

Dieter Nautz and Jan Scheithauer

No 2010/26, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persistence of overnight rates. Our results suggest that a well-communicated and transparent interest rate target of the central bank is a particularly important condition for a low degree of overnight rate persistence.

Keywords: Controllability and Persistence of Interest Rates; Operational Framework of Central Banks; Long Memory and Fractional Integration (search for similar items in EconPapers)
JEL-codes: C22 E52 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Monetary policy implementation and overnight rate persistence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:201026

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