Monetary policy implementation and overnight rate persistence

Dieter Nautz and Jan Scheithauer

Journal of International Money and Finance, 2011, vol. 30, issue 7, 1375-1386

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; E52; C22 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:30:y:2011:i:7:p:1375-1386

DOI: 10.1016/j.jimonfin.2011.07.005

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