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Volatility and liquidity in the Italian money market

Author

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  • Palombini, Edgardo
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.

Suggested Citation

  • Palombini, Edgardo, 2003. "Volatility and liquidity in the Italian money market," MPRA Paper 42699, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42699
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    References listed on IDEAS

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    Cited by:

    1. R. Baupain & A. Durre, 2007. "The interday and intraday patterns of the overnight market : evidence from an electronic platform," Post-Print hal-00300195, HAL.
    2. Aneta Hryckiewicz & Piotr Mielus & Karolina Skorulska & Malgorzata Snarska, 2018. "Does a bank levy increase frictions on the interbank market?," KAE Working Papers 2018-033, Warsaw School of Economics, Collegium of Economic Analysis.
    3. Jacob Oduor & Moses Muse Sichei & Samuel Kiplangat Tiriongo & Chris Shimba, 2014. "Working Paper 202 - Segmentation and efficiency of the interbank market and their implication for the conduct of monetary policy," Working Paper Series 2106, African Development Bank.
    4. Anastasios Demertzidis, 2019. "Interbank transactions on the intraday frequency: -Different market states and the effects of the financial crisis-," MAGKS Papers on Economics 201932, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    high-frequency data; liquidity; money market; overnight; payment system; reserve requirements; volatility;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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