The effectiveness of monetary policy in steering money market rates during the financial crisis

Abbassi, Puriya; Linzert, Tobias

doi:10.1016/j.jmacro.2012.06.004

Cited by 73 publications

(39 citation statements)

References 28 publications

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“…LOP also in this case provides very accurate forecasts and scores very close to the best two models. LOP weights in Figure 5 show that there is some uncertainty at the beginning of the sample, but after September 2007 Abbassi and Linzert (2011), where the mean of the series shifts upward and volatility is high but less than for the previous period. We find as in Bhardwaj and Swanson (2006) that ARFIMA models produce accurate forecasts when there are several stochastic and unknown structural breaks.…”

Section: Forecast Resultsmentioning

confidence: 98%

Forecasting the Intraday Market Price of Money

Monticini

Ravazzolo

2011

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Central banks' operations and efficiency arguments would suggest that the intraday interest rate should be set to zero. However, a liquidity crisis introduces frictions related to news, which can cause an upward jump of the intraday rate. This paper documents that these dynamics can be partially predicted during turbulent times. Long memory approaches or a combination of them to account for model uncertainty outperform random walk, autoregressive and moving average benchmarks in terms of point and density forecasting. The relative accuracy is higher when the full distribution is predicted. We also document that such statistical accuracy can provide economic gains in investment strategies based on lending in the intraday market. Terms of use: Documents in

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Section: Forecast Resultsmentioning

confidence: 98%

Forecasting the Intraday Market Price of Money

Monticini

Ravazzolo

2011

SSRN Journal

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“…2 Money markets dried up due to a loss of confidence within the banking system, leading to renewed interest especially in the first part of the IP, the transmission from policy rates to money market rates (see, e.g.,Čihák, Harjes, and Stavrev (2009), Abbassi and Linzert (2012)). These studies find that, while the transmission from conventional monetary policy and monetary policy expectations to money market rates weakened, unconventional measures were effective in reducing money market rates.…”

Section: Introductionmentioning

confidence: 97%

The interest rate pass-through in the euro area during the sovereign debt crisis

Borstel

Eickmeier

Krippner

2016

Journal of International Money and Finance

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“…Reifschneider et al (1999) assume that movements in long-term interest rates, coming from the expected path of shortterm rates a¤ect overall …nancial conditions and aggregate demand. Abbassi and Linzert (2012) longer-term interest rates, imply less e¤ective monetary policy. My paper contributes to this literature by studying how the interest-rate sluggishness caused by longer-term rates, a¤ects the e¤ectiveness of the combination of monetary and macroprudential policies, not only to stabilize the macroeconomy but also the …nancial system.…”

Section: Introductionmentioning

confidence: 99%

“…In the second option, there is a macroprudential regulator that uses a countercyclical rule for the LTV as a macroprudential tool. 1 Under this rule, the LTV would be the instrument of the macroprudential regulator and would react to credit growth. In this way, if the economy is, for instance, entering a credit boom, the LTV will be cut, thus restricting credit in the economy and avoiding excessive credit growth.…”

Section: Introductionmentioning

confidence: 99%

Short and long-term interest rates and the effectiveness of monetary and macroprudential policies

Rubio

2016

Journal of Macroeconomics

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In this paper, I analyze the ability of monetary and macroprudential policies to stabilize both the macroeconomy and …nancial markets under two di¤erent scenarios: short and long-term rates.I develop and solve a New Keynesian dynamic stochastic general equilibrium model that features a housing market, borrowers and savers. Borrowers can access credit markets through their housing collateral. I consider two alternative ways of introducing a macroprudential approach to enhance …nancial stability: one in which monetary policy, using the interest rate as an instrument, responds to credit growth; and a second one in which the macroprudential instrument is instead the loan-to-value ratio (LTV). Results show that monetary and macroprudential policies are less e¤ective with longterm rates. However, in the short-term case, monetary policy can achieve the …nancial stability goal only at the expense of higher macroeconomic volatility. If the macroprudential policy is implemented using an LTV rule, …nancial stability improves signi…cantly with short-term rates but just marginally with long-term ones.

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The effectiveness of monetary policy in steering money market rates during the financial crisis

Cited by 73 publications

References 28 publications

Forecasting the Intraday Market Price of Money

Forecasting the Intraday Market Price of Money

The interest rate pass-through in the euro area during the sovereign debt crisis

Short and long-term interest rates and the effectiveness of monetary and macroprudential policies

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