Overnight Volatility in Financial Markets: Causes and Consequences

Informations projet

Overnight Volatility

N° de convention de subvention: 273677

Projet clôturé

Date de début 22 Juillet 2011

Date de fin 11 Novembre 2013

Financé au titre de

• Specific programme "People" implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013)

Coût total € 179 477,80

Contribution de l’UE € 179 477,80

Coordonné par

KOC UNIVERSITY
Turquie

Objectif

This project consists of four parts, each of which will analyze a different aspect of interbank overnight rate volatility (hereafter “OV”).

In the first part of the project, the implications of OV on longer term interest rates will be investigated. The expectations hypothesis notes that longer-term rates should equal expected future short-term rates plus a term premium. We will look for evidence that OV can affect the term premium embedded in longer-term rates. The analysis will be conducted for the US, Euro Area, and the UK. Cross-country comparisons are essential to identify the impact of OV under different monetary policy frameworks. We expect to find that lower OV in the interbank market leads to a lower term premium by reducing uncertainty, and thus lower longer-term rates for a given setting of the overnight rate.

In the second part of the project, we will focus on the sensitivity of OV to different reserve management regimes by utilizing a dynamic optimization model of daily reserve management. Using this model, we will investigate the implications of alternative reserve management strategies on OV including the reserve management practices at the Fed and the ECB. This way, we will check whether a particular reserve management strategy is preferable in terms of achieving lower OV.

The third part of the project will utilize an interdisciplinary causal search algorithm to investigate the links between OV and broader macroeconomic variables such as the GDP, the price level, and the yield curve in a structural vector auturegression framework.

The last part of the project will develop an intertemporal optimization model to estimate the demand for term deposit facilities and their implications on OV. Term deposit facilities are established by the central banks (Fed, ECB, RBA) during the recent financial crisis. Because of the current nature of these developments, there has not been any work done understanding the functioning of these deposit facilities.

Champ scientifique (EuroSciVoc)

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• sciences sociales › économie et affaires › entreprise et gestion

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Programme(s)

• FP7-PEOPLE - Specific programme "People" implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013)

Thème(s)

• FP7-PEOPLE-2010-IOF - Marie Curie Action: "International Outgoing Fellowships for Career Development"

Appel à propositions

FP7-PEOPLE-2010-IOF
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Régime de financement

MC-IOF -

Coordinateur

KOC UNIVERSITY

• Contribution de l’UE: € 179 477,80
• Adresse: RUMELI FENERI YOLU SARIYER ; 34450 Istanbul ; Turquie
• Région: İstanbul › İstanbul › İstanbul
• Type d’activité: Établissements d’enseignement supérieur ou secondaire
• Coût total: Aucune donnée