The Role of Eonia in the Dynamics of Short-Term Interbank Rates
To signal monetary policies and market expectations, we apply a fractionally cointegrated vector autoregressive (FCVAR) model, aiming to ana- lyse the expectations hypothesis of term structure (EHTS), persistence in the Euro Over Night Index Average (Eonia) spread and permanent-transitory decom- pos...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Estado: | Versión publicada |
| Fecha de publicación: | 2020 |
| País: | España |
| Institución: | Universidad de Sevilla (US) |
| Repositorio: | idUS. Depósito de Investigación de la Universidad de Sevilla |
| OAI Identifier: | oai:idus.us.es:11441/125106 |
| Acceso en línea: | https://hdl.handle.net/11441/125106 https://doi.org/10.2298/PAN171004018C |
| Access Level: | acceso abierto |
| Palabra clave: | Eonia rate Long memory and fractional cointegration Euribor rate Persistence of interest rates Permanent-transitory decomposition |
| Sumario: | To signal monetary policies and market expectations, we apply a fractionally cointegrated vector autoregressive (FCVAR) model, aiming to ana- lyse the expectations hypothesis of term structure (EHTS), persistence in the Euro Over Night Index Average (Eonia) spread and permanent-transitory decom- position using a novel approach. We use a monthly frequency sample for the 3- month Euribor rate and Eonia rate, covering the period from January 1999 to February 2019. The results obtained confirm the EHTS and show evidence of a high persistence of the spread, which means that shocks may impede effective- ness in monetary policy and that the European Central Bank (ECB) loses control over interest rates. Additionally, according to permanent-transitory decomposi- tion, we determine that the Eonia rate has a permanent component and thus dominates the common trend in the cointegration system. In sum, if the ECB wants to keep the interbank market interest rates under control, it must contem- plate the evolution of the Eonia rate. |
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