Comovements in volatility in the euro money market

Nuno Cassola and Claudio Morana

No 703, Working Paper Series from European Central Bank

Abstract: This paper assesses the sources of volatility persistence in Euro Area money market interest rates and the existence of linkages relating volatility dynamics. The main findings of the study are as follows. Firstly, there is evidence of stationary long memory, of similar degree, in all series. Secondly, there is evidence of fractional cointegration relationships relating all series, except the overnight rate. Two common long memory factors are found to drive the temporal evolution of the volatility processes. The first factor shows how persistent volatility shocks are trasmitted along the term structure, while the second factor points to excess persistent volatility at the longer end of the yield curve, relative to the shortest end. Finally, impulse response analysis and forecast error variance decomposition point to forward transmission of shocks only, involving the closest maturities. JEL Classification: C32, F30, G10

Keywords: fractional integration and cointegration; fractional vector error correction model.; liquidity e¤ect; money market interest rates; realized volatility (search for similar items in EconPapers)
Date: 2006-12
Note: 334845
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Comovements in volatility in the euro money market (2010)
Working Paper: Comovements in Volatility in the Euro Money Market (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2006703

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