Persistence and Volatility in Short-Term Interest Rates

The Bank of England Working Paper No. 116

43 Pages Posted: 25 Sep 2000

See all articles by Nikolaos Panigirtzoglou

Nikolaos Panigirtzoglou

Queen Mary, University of London

James Proudman

Bank of England, Monetary Instruments and Markets Division

John Spicer

European Economic Research Ltd.

Date Written: 2000

Abstract

It is important for monetary policy makers to know how closely money market rates follow the policy rates they set. This paper looks at the volatility and persistence of divergences between short-term market interest rates away from policy rates. This may also offer insights into the effectiveness of various approaches that central banks employ to smooth interest rate volatility, such as requiring minimum reserves. Using data for Germany, Italy and the United Kingdom, we find that in all three countries there are significant temporary divergences, although the average divergence is close to zero.

JEL Classification: E43, E52, E58

Suggested Citation

Panigirtzoglou, Nikolaos and Proudman, James and Spicer, John, Persistence and Volatility in Short-Term Interest Rates (2000). The Bank of England Working Paper No. 116, Available at SSRN: https://ssrn.com/abstract=234696 or http://dx.doi.org/10.2139/ssrn.234696

Nikolaos Panigirtzoglou (Contact Author)

Queen Mary, University of London ( email )

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James Proudman

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John Spicer

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