The sources of volatility transmission in the Euro area money market: from longer maturities to the overnight?

Paolo Zagaglia

Applied Economics Letters, 2010, vol. 17, issue 9, 865-868

Abstract: This article investigates the transmission of volatility from longer maturities to the overnight segment of the Euro area money market. I use nonparametric estimates of the daily variance of swap rates to test for block exogeneity with respect to the overnight. The results suggest that there exists transmission of volatility shocks from the 1-year swap rate to the overnight market. The reform of the operational framework of March 2004 has improved the segmentation of the market, as it has insulated the overnight segment from volatility spillovers stemming from swap rates of up to 6 months of maturity.

Date: 2010
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Working Paper: The Sources of Volatility Transmission in the Euro Area Money Market: From Longer Maturities to the Overnight? (2008)
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DOI: 10.1080/17446540802498809

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