Money Market Integration, Issues 2006-2207
International Monetary Fund, Research Dept., 2006 - Business & Economics - 26 pages
We use transaction-level data and detailed modeling of the high-frequency behavior of federal funds and Eurodollar yield spreads to provide evidence of strong integration between the federal funds and Eurodollar markets, the two core components of the dollar money market. Our results contrast with previous evidence of segmentation of these two markets, showing them to be well integrated even at high intra-day frequency. We document several patterns in the behavior of federal funds and Eurodollar spreads, including liquidity effects from trading volume to yield spreads volatility. Our analysis supports the view that targeting federal funds rates alone is sufficient to stabilize rates in the, much larger, dollar money market as a whole.
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1.8 basis points 3-day holiday analysis arbitrage autoregressive coefficient Brokers NY federal Calendar Effects confidence interval Cyree daily regression daily Day after end Day before end Demiralp dollar money market effect on mean effective federal funds EGARCH end of months end of quarter Euro Brokers data Eurodollar market Eurodollar rates Eurodollar trading volume Eurodollar yields evidence of federal evidence of segmentation federal funds market federal funds rates federal funds-Eurodollar segmentation federal funds-Eurodollar spreads Federal Reserve Fedwire FOMC meeting funds and Eurodollar funds trading volume hourly data hourly spreads institutions interest rate intra-day lagged spread effect London market conditions markets for federal million model General model model Restricted model open market auctions percent predictable Preslopsky previous evidence previous studies regression General model reserve period reserve requirements serially correlated standard deviation Table 2d Tables 2a-2d target rate U.S. banks volume on mean volume on volatility Whitesell 2004 yield spreads York market