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The intraday interest rate under a liquidity crisis: the case of August 2007

Angelo Baglioni () and Andrea Monticini

No ief0083, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: By analyzing high frequency data for the European interbank market, we show that the intraday interest rate (implicitly defined by the term structure of the ON rate) jumped by more than ten times at the outset of the financial turmoil in August 2007, resulting in an inefficiency of the money market. This took place despite the provision of unlimited free daylight overdrafts by the ECB, on a collateralized basis. We suggest that such result may be attributed to an increase of the liquidity premium and of the cost of collateral.

Keywords: intraday interest rate; liquidity crisis; money market; central banking (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Pages: nn pages 16
Date: 2008-09
New Economics Papers: this item is included in nep-eec, nep-mon and nep-mst
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http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0083.pdf First version, 2008 (application/pdf)

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Journal Article: The intraday interest rate under a liquidity crisis: The case of August 2007 (2010) Downloads
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