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The Microstructure of the Euro Money Market

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Author Info
Hartmann, Philipp
Manna, Michele
Manzanares, Andres

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Abstract

This Paper provides the first empirical examination of the microstructure of the euro money market, using tick data from brokers located in six countries. Special emphasis is put on the institutional environment (monetary policy decisions and their implementation, payment systems and private market structures) and its implications for intraday volatility, quoting activity, trading volume and bid-ask spreads in the overnight deposit segment. Volatility and spreads increase right after ECB monetary policy decisions, but market expectations of the interest rate changes were relatively precise during the sample period. Main refinancing operations with the open market are associated with active liquidity re-allocation, little volatility and no signs of market power or adverse selection. Spreads and volatility were high at the end of the reserve maintenance periods and during the year 2000 changeover. Even intraday, overnight rate levels hardly differ across euro area countries, reflecting active arbitrage and a high degree of integration.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3081.

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Date of creation: Nov 2001
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Handle: RePEc:cpr:ceprdp:3081

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Related research
Keywords: auctions; financial market microstructure; high-frequency data; monetary policy instruments; overnight deposit rates; payment systems; reserve requirements; trading volume; transaction costs;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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