Volatility and liquidity in the Italian money market

Edgardo Palombini ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper constructs unbiased and model-free measures of daily and hourly volatility of the overnight interest rate negotiated on the Italian interbank deposits market (e-MID) using high-frequency transaction data. We find that the largest increases in volatility and the most notable variations of its intraday pattern occur at the end of the reserve maintenance period and at the end of each quarter. The average effect on market volatility of Eurosystem money market operations and interest rate decisions is not significant. We then try to assess the liquidity of the market investigating the relation between trading volume and volatility, finding that even large increases in trading activity do not cause sharp movements in interest rates.

Keywords: high-frequency data; liquidity; money market; overnight; payment system; reserve requirements; volatility (search for similar items in EconPapers)
JEL-codes: C14 C22 E43 G14 (search for similar items in EconPapers)
Date: 2003-03
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Citations: View citations in EconPapers (4)

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