Comovements in volatility in the euro money market

Nuno Cassola and Claudio Morana

Journal of International Money and Finance, 2010, vol. 29, issue 3, 525-539

Abstract: This paper assesses the sources of volatility persistence in Euro Area money market interest rates and the existence of linkages relating volatility dynamics. The main findings of the study are as follows. Firstly, there is evidence of stationary long memory, of similar degree, in all series. Secondly, there is evidence of fractional cointegration relationships relating all series, except the overnight rate. The common long memory factor analysis points to a two-factor volatility curve. The most important factor, in terms of proportion of total variance explained, can be interpreted as a level factor (64% of total variance), while the other as a slope factor (13% of total variance). Impulse response analysis and forecast error variance decomposition finally point to non significant forward transmission of liquidity shocks.

Keywords: Money; market; interest; rates; Liquidity; effect; Realized; volatility; Fractional; integration; and; cointegration; Fractional; vector; error; correction; model (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Comovements in Volatility in the Euro Money Market (2007)
Working Paper: Comovements in volatility in the euro money market (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:29:y:2010:i:3:p:525-539

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