Working Paper Series No 987 / DEcEMBER 2008
Probability of informed trading on the euro overnight market rate an update
by Julien Idier and Stefano Nardelli WORKING PAPER SERIES NO 987 / DECEMBER 2008
ECB WORKSHOP ON THE ANALYSIS OF THE MONEY MARKET
PROBABILITY OF INFORMED TRADING ON THE EURO OVERNIGHT MARKET RATE AN UPDATE 1
by Julien Idier 2 and Stefano Nardelli 3
In 2008 all ECB publications This paper can be downloaded without charge from feature a motif taken from the http://www.ecb.europa.eu or from the Social Science Research Network 10 banknote. electronic library at http://ssrn.com/abstract_id=1310646.
1 The paper reflects the opinions of the authors and does not necessarily express the views of the European Central Bank, the Banque de France and the University of Paris 1 Panthéon-Sorbonne This version represents an updated version of Banque de France WP 176 mainly in the light of 2007 money market events. The two authors would like to thank those who contributed to improve previous versions of the paper with their valuable comments. In particular, the authors would like to thank Natacha Valla for her comments at the internal seminar of the Banque de France in July 2007 and Gunther Wuyts and Frederic Boissay for their discussions at the ECB Workshop on “The analysis of the money market: role, challenges and implications from the monetary policy perspective” in November 2007. 2 Corresponding author: Banque de France, 39, rue Crois-des-Petits-Champs, F-75049 Paris Cedex 01, France; e-mail: [email protected] 3 European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany; e-mail: [email protected] ECB WORKSHOP ON THE ANALYSIS OF THE MONEY MARKET
On 14 and 15 November 2007, Alain Durré, Huw Pill and Diego Rodriguez-Palenzuela of the ECB’s Monetary Policy Stance Division organised a central bank workshop titled “The Analysis of the Money Market: Role, Challenges and Implications from the Monetary Policy Perspective”. This workshop provided an opportunity for participating central bank experts to exchange views and foster debate, also in interaction with international organizations and academic institutions. The first day of the workshop addressed issues related to the macro-perspective of the money market, drawing on the experiences of a large number of countries. The second day adopted a micro-perspective on the money market, looking in particular at trading behaviour in the overnight money market and its implications for the evolution of spreads.
A first version of this paper was presented at this workshop. The papers presented at the time of the workshop did not consider the potential implications of the financial turmoil for the results of the paper, given that the tensions in money markets emerged in August 2007. The published version of these papers represents an update of the original paper, which incorporates the discussion which took place at the workshop and in most cases a discussion on the developments in the money markets since August 2007.
© European Central Bank, 2008
Address Kaiserstrasse 29 60311 Frankfurt am Main, Germany
Postal address Postfach 16 03 19 60066 Frankfurt am Main, Germany
Telephone +49 69 1344 0
Website http://www.ecb.europa.eu
Fax +49 69 1344 6000
All rights reserved.
Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the author(s).
The views expressed in this paper do not necessarily refl ect those of the European Central Bank.
The statement of purpose for the ECB Working Paper Series is available from the ECB website, http://www.ecb.europa. eu/pub/scientific/wps/date/html/index. en.html
ISSN 1561-0810 (print) ISSN 1725-2806 (online) CONTENTS
Abstract 4 Non-technical summary 5 1 Introduction 7 2 The euro money market structure 9 2.1 Refi nancing operations design 9 2.2 The interbank market 10 3 The model 12 3.1 Model structure 12 3.1.1 Assets 13 3.1.2 Information on assets 13 3.1.3 The population of traders 14 3.2 A sequential trade model 14 3.3 Informed trade vs. uninformed trade 16 3.4 Asymmetric information and market liquidity 17 4 Data and results 18 4.1 Dataset 18 4.2 Trade classication 19 4.3 Maximum likelihood estimation 21 5 Market learning and the role of information in a historical perspective 22 5.1 A break in the learning process? 23 5.2 The impact of the 2004 reform of the Eurosystem operational framework 26 5.3 The market turmoil 28 6 Conclusion 30 Annex 32 References 35 European Central Bank Working Paper Series 37
ECB Working Paper Series No 987 December 2008 3 Abstract
In this paper the probability of informed trading (PIN) model developed by Easley and O’Hara (1992) is applied to analyze the role and impact of heterogeneities in euro over- night unsecured market. The empirical assessment of the functioning of this market is based on the PIN which measures the ability of traders to interpret signals on the expected evolution of the overnight rate. Results show that between 2000 and 2004 a heterogeneous learning process of market mechanisms within participants could be observed, whereas such asymmetries have been sharply decreasing since 2005. This is reviewed against some significant events that occurred in the euro money market, such as the reform of the Eurosystem’s operational framework in March 2004 and the recent financial market turmoil, which has represented a break in the steady decline of asymmetries as evidence suggest.
Keywords: Microstructure, PIN model, Money Markets
JEL Classification: G14, E52.
ECB Working Paper Series No 987 4 December 2008 /. 4%#(.)#!, 35--!29 #B 979A69F =B 5 GD997< 56CIH H<9 QB5B7=5@ A5F?9H HIFAC=@ 'F !CBN]@9N *]F5AC A9A69F C: H<9 L97IH=J9 C5F8 C: H<9 ;5J9 H<9 :C@@CK=B; 7CAA9BH ZK<9B H5@?=B; 56CIH =B:CFA5H=CB =B H<9 7CBH9LH C: H<9 QB5B7=5@ HIFAC=@ 5 ?9M 8=A9BG=CB C: =BH9F9GH F9;5F8G H<9 FC@9 C: =B:CFA5H=CB5@ 5GMAA9HF=9G =B H<9ACB9M A5F?9HG[ =BHFC8I7=B; =B H<=G K5M 5B =BH9F9GH=B; D9FGD97H=J9 =B H<9 7CBH9LH C: H<9 8=G7IGG=CBG BCH CB@M 56CIH H<9 HIFAC=@ 6IH 5@GC :CF ACB9M A5F?9HG -<9 FC@9 C: =B:CFA5H=CB K<=7< =G K=89@M 57?CK@98;98 5B8 <5G 699B =BJ9GH=;5H98 9LH9BG=J9@M =B QB5B7=5@ A5F?9HG GI7< 5G GHC7? A5F?9HG "CK9J9F 89GD=H9 H<9 FC@9 D@5M98 6MACB9M A5F?9HG :CF ACB9H5FM DC@=7M H<=G 8=A9BG=CB <5G 699B 5@ACGH =;BCF98 CF 588F9GG98 F5H<9F A5F;=B5@@M =B H<9 57589A=7 @=H9F5HIF9 C7IG=B; CB 9IFC ACB9M A5F?9HG =B:CFA5H=CB 5GMAA9HF=9G A5M 57HI5@@M D@5M 5 G=;B=Q75BH FC@9 CB J5F=CIG 8=A9BG=CBG F9@5H98 HC ECB Working Paper Series No 987 December 2008 5 0<=@9 5I7H=CB 69<5J=CIFG 5B8 H<9 FC@9 C: DF=J5H9 =B:CFA5H=CB <5J9 699B =BJ9G H=;5H98 9GD7=5@@M =B 5 BIA69F C: H<9CF9H=75@ D5D9F J9FM G75F79 D5D9FG =: 5BM <5J9 5B5@MG98 H<9 FC@9 C: =B:CFA5H=CB 5GMAA9HF=9G =B H<9 DF=79 :CFA5H=CB A97<5B=GA =B H<9 G97CB85FM A5F?9H -<=G D5D9F F9DF9G9BHG 5B 5HH9ADH HC 58F9GG H<9 F9@9 J5B79 C: H<=G =GGI9 =B H<9 9IFC CJ9FB=; ECB Working Paper Series No 987 6 December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orking Paper Series No 987 December 2008 7 CB 5GD97HG F9@5H98 HC TG 5I7H=CBG 5B8 H<9=F 89G=;B HC GIDD@M @=EI=8=HM HC H<9 65B?=B; GMGH9A CF 9L5AD@9 =B K9F<5FH 9H 5@ 65B?GT 6=88=B; 69<5J=CF =B H<9 IFCGMGH9ATG A5=B F9QB5B7=B; CD9F5H=CBG '+)G =G 5B5@MN98 =B 7CBB97H=CB K=H< H<9 G=HI5H=CB =B H<9 G97CB85FM A5F?9H )H<9F D5D9FG 5B5@MN98 9AD=F=75@@M H<9 9Y97HG C: H<9 7<5B;9G =BHFC8I798 HC H<9 CD9F5H=CB5@ :F5A9KCF? =B CB J5F=CIG 8=A9BG=CBG =B D5FH=7I@5F CB 65B?TG 6=88=B; 69<5J=CF 5B8 CB ACB9M A5F?9H F5H9GT @9J9@ 5B8 JC@5H=@=HM #B ;9B9F5@ <9H9FC;9B9=HM =B 65B?GT 69<5J=CF =G CB@M 588F9GG98 :FCA 5 H<9CF9H=75@ D9FGD97H=J9 K<=@9 9AD=F=75@ GHI8=9G 5F9 GH=@@ J9FM G75F79 9GD97=5@@M :CF H<9 9IFC 5F95 -<=G D5D9F HF=9G HC Q@@ H<=G ;5D 5B8 5B5@MG9G H<9 9Y97HG C: <9H9FC;9B9CIG =B:CFA5 H=CB CB HF589 69<5J=CF =B H<9 =BH9F65B? A5F?9H #B H<9 57589A=7 @=H9F5HIF9G9J9F5@ AC89@G <5G 699B DFCDCG98 5@@ 65G98 CB 9=H<9F GHC7? CF 9L7<5B;9 F5H9 A5F?9HG )B9 C: H<9 QFGH AC89@ 588F9GG=B; =B:CFA5H=CB 5GMAA9HF=9G =B 5 GHC7? A5F?9H =G H<9 G9 EI9BH=5@ HF589 AC89@ C: !@CGH9B 5B8 '=@;FCA 5G98 CB H<=G G9A=B5@ AC89@ 5G@9M 5B8 )T"5F5 89J9@CD98 H<9=F DFC656=@=HM C: =B:CFA98 HF58=B; *#( AC89@ HC A95GIF9 =B:CFA5H=CB <9H9FC;9B9=HM =B DCDI@5H=CBG C: HF589FG 5B8 HC GHI8M =HG =AD57H CB DF=79 :CFA5H=CB 5B8 A5F?9H @=EI=8=HM -<9 *#( AC89@ =G 6I=@H CB H<9 D5HH9FB C: 6IM 5B8 G9@@ CF89FG K<=7< =G =BH9FDF9H98 5G GH9AA=B; :FCA <9H9FC;9BCIG =B:CFA5H=CB RCKG =B H<9 A5F?9H -<9 5DDFC57< 6M 5G@9M 9H )T"5F5 <5G =BGD=F98 5 F9@5H=J9@M F=7< G9H C: D5D9FG ACGH C: K<=7< :C7IG9G CB 9EI=HM A5F?9HG #B H<=G D5D9F 5 *#( AC89@ =G 5DD@=98 :CF H<9 QFGH H=A9 HC H<9 ACB9M A5F?9H HC 5B5@MN9 H<9 9IFC CJ9FB=; ,99 (9M9F IFF_ 5B8 (5F89@@= $5F89H 5B8 &9 C@ ,99 5G@9M %=9:9F )T"5F5 5B8 *5D9FA5B K ECB Working Paper Series No 987 8 December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orking Paper Series No 987 December 2008 9 @=EI=8=HM =G 8=GHF=6IH98 '(& (* HC 6=889FG 5@@ CY9F=B; H<9 G5A9 =BH9F9GH F5H9 65G98 CB G<5F9G 7CADIH98 CB H<9 65G=G C: =B8=J=8I5@ 89A5B898 5ACIBHG -C 69 56@9 HC D5FH=7=D5H9 HC 79BHF5@ 65B?TG 5I7H=CBG 65B?G AIGH 7CAD@M K=H< F9EI=F9A9BHG CB H<9=F QB5B7=5@ GCIB8B9GG 5B?G AIGH DCGG9GG 589EI5H9 7C@@5H9F5@ =B DFCDCFH=CB HC H<9 5ACIBH C: @=EI=8=HM F979=J98 :FCA H<9 79BHF5@ 65B? FCA H<9 D9FGD97H=J9 C: D5FH=7=D5H=CB HC 8=F97H F9QB5B7=B; H<9 9L=GH9B79 C: H<9G9 DFCJ=G=CBG A5M 57HI5@@M 69 8=G7F=A=B5HCFM 5G 65B?G BCH <5J=B; GIX7=9BH CF @CK EI5@=HM 7C@ @5H9F5@ 5F9 9L7@I898 #B CH<9F KCF8G 9L=GH=B; FI@9G H<5H 5=A98 5H 9BGIF=B; QB5B7=5@ GCIB8B9GG A5M 57HI5@@M F9DF9G9BH 5 65FF=9F :CF GCA9 65B?G #B 588=H=CB HC H<9G9 HKC HMD9G C: CD9F5H=CBG 5BCH<9F CB9 <5G F979BH@M 697CA9 F5H<9F :F9EI9BH QB9 HIB=B; CD9F5H=CBG -)G -)G 5F9 ;9B9F5@@M 7CB8I7H98 5H H<9 9B8 C: F9G9FJ9 A5=BH9B5B79 D9F=C8G HC F9GC@J9 G=;B=Q75BH @=EI=8=HM =A65@5B79G 5B8 HC 5JC=8 A5F?98 89D5FHIF9G C: H<9 CJ9FB=; (% ).4%2"!.+ -!2+%4 G97CB85FM GCIF79 C: F9QB5B7=B; =G F9DF9G9BH98 6M H<9 =BH9F65B? A5F?9H &=E I=8=HM =B H<9 =BH9F65B? A5F?9H =G HMD=75@@M BCH 79BHF5@=N98 5B8 65B?G 895@ CB H<=G A5F?9H =B J5F=CIG K5MG G=;B=Q75BH 5ACIBH C: HF5BG57H=CBG 5F9 IBG97IF98 = 9 K=H =B5B7=5@ 5GG9HG AIGH :I@Q@ GCA9 7F=H9F=5 HC 69 9@=;=6@9 5G 7C@@5H9F5@ F=H9F=5 :CF 9@=;=6=@=HM =ADCG9 H<5H 7F98=H F5H=B; C: 79FH5=B HMD9 C: 5GG9HG AIGH 69 56CJ9 5 H ECB Working Paper Series No 987 10 December 2008 H<9F 6975IG9 H<9M 75B 5779GG J5F=CIG F9QB5B7=B; GCIF79G CF 6975IG9 H<9M 75B 9LD@C=H ACF9 9X7=9BH@M H<9 =B:CFA5H=CB CB 5;;F9;5H9 @=EI=8=HM 7CB8=H=CBG -<9 9IFC ACB9M A5F?9H <5G 9LD9F=9B798 5 CF ACF9 89H5=@G CB H<9 7<5F57H9F=GH=7G C: H<9 9IFC ACB9M A5F?9H G99 IFCD95B 9BHF5@ 5B? -=D=75@@M H<9 FI@9G F9;I@5H=B; H<9 5779GG HC HF589 =B 9 '= 9L7@I89 A5BM 65B?G 6M =ADCG=B; 5 B9H 5GG9H KCFH<9F H<5B ., A=@@=CBG K<=7< DF9J9BHG GA5@@9F 65B?G :FCA 697CA=B; A5F?9H D5FH=7=D5BHG 5B8 5JC=8G 5BM DCH9BH=5@ F9DIH5H=CB DFC6@9AG ECB Working Paper Series No 987 December 2008 11 65B?TG F9QB5B7=B; CF A5M CY9F CDDCFHIB=H=9G HC CB@M :9K 65B?G HC HF589 GHF5H9;=75@@M =B H<9 G97CB85FM A5F?9H H<=F8 :57HCF =G H<9 @C75H=CB C: H<9 65B? (CHK=H -" ') & -<9 9AD=F=75@ AC89@ DF9G9BH98 69@CK 7CBG=89FG A5F?9H =B:CFA5H=CB 5B8 H<9 :57H H<5H HF589FG 65B?G 8C BCH D9F79=J9 DF=79 G=;B5@G =B H<9 G5A9 A5BB9F -C HF95H <9H9FC;9B9=HM =B H9FAG C: H<9 7<5F57H9F=GH=7G CIH@=B98 56CJ9 HKC ;FCIDG C: 65B?G 5F9 7CBG=89F98 6=; 65B?G 5F9 89QB98 5G =B:CFA98 65B? 5B8 GA5@@ 65B?G 5G IB=B:CFA98 65B?G -<9 :F5A9KCF? IG98 :CF H<9 9AD=F=75@ 5B5@MG=G =G H<9 G5A9 5G =B 5G@9M 5B8 )T"5F5 585DH98 HC QH GCA9 GD97=Q7 7<5F57H9F=GH=7G C: H<9 ACB9M A5F?9H 5B8 9GH=A5H98 IG=B; 85H5 #B H<9 B9LH G97H=CBG H<9 A5=B :95HIF9G C: H<9 AC89@ 5F9 QFGH =@@IGHF5H98 HC;9H<9F K=H< GCA9 D5F5A9H9FG 89F=J98 :FCA H<9 65G=7 AC89@ = 9 H<9 DFC656=@=HM C: =B:CFA98 HF58=B; *#( 5B8 H<9 A5F?9H @=EI=8=HM -<9B 5 @=?9@= /$%, 425#452% -C EI5@=:M H<9 AC89@ IG98 :CF H<9 9L9F7=G9 89J9@CD98 @5H9F =B H<9 D5D9F H<9 ACGH F9@9J5BH :95HIF9G C: H<9 G9A=B5@ AC89@ 6M 5G@95M )T"5F5 F9:9FF98 HC 5G )AC89@ H<9F95:H9F 5F9 QFGH 8=G7IGG98 5B8 HF5BGDCG98 HC H<9 ACB9M A5F?9H B 9L5AD@9 =G F9DF9G9BH98 6M *CFHI;I9G9 65B?G K<=7< B9J9F D5FH=7=D5H9G HCK99?@M'+)G ECB Working Paper Series No 987 12 December 2008 )) *) #B H<9 IBG97IF98 CJ9FB=; % &($*!&% &% )) *) )B H<9 FC@9 C: =B:CFA5H=CB HKC 8=A9BG=CBG 75B 69 7CBG=89F98 =FGH 5 ;CC8 ?BCK@98;9 C: 5;;F9;5H9 @=EI=8=HM 7CB8=H=CBG =B H<9 ACB9M A5F?9H ;=J9G 5B =BG=; H<9 6=;;9F H<9 B998G C: @=EI=8=HM 5F9 :CF 5 65B? H<9 @5F;9F =HG G<5F9 =B ;@C65@ @=EI=8=HM B998G =G H<9 ACF9 57H=J9 5 65B? =G H<9 69HH9F H<9 HCC@G =H G H<9 ACF9 57H=J9 5 65B? =G H<9 ACF9 CF89FG =H 79BHF5@=N9G G 5 7CBG9EI9B79 =: 5 65B? <5G 5B 57H=J9 FC@9 =B H<9 A5F?9H =HG ?BCK@98;9 56CIH A5F?9H B998G G ECB Working Paper Series No 987 December 2008 13 '&'+#*!&% & *( () -<9 DCDI@5H=CB C: HF589FG =G 7<5F57H9F=N98 6M =B:CFA5H=CB <9H9FC;9B9=HM #B H<9 ACB9M A5F?9H HF589FG 5F9 65B?G K<=7< 75B 69 7@5GG=Q98 5G =B:CFA98 IB=B :CFA98 5B8 A5F?9H A5?9FG G =B (9M9F 65B?G 5F9 ACH=J5H98 HC HF589 A5=B@M HC 7CAD@M K=H< =BGH=HIH=CB5@ FI@9G = 9 :I@Q@@A9BH C: F9G9FJ9 F9EI=F9A9BHG 5B8 A=B=A=N9 H<9 7CGH C: <5B8@=B; @=EI=8=HM X7=9BH@M =B:CFA98 65B?G A99H HKC 7F=H9F=5 =FGH H<9M <5J9 GID9F=CF =B:CFA5 H=CB 5B8 HF589 CB H<9 65G=G C: H<=G =B:CFA5H=CB -<9M F9DF9G9BH H<9 ACGH 57H=J9 DCC@ C: 65B?G H<9M 57EI=F9 IB89FGH5B8 5B8 IG9 A5F?9H =B:CFA5H=CB ,97CB8 H<9M 5F9 GIDDCG98 HC <5J9 :I@Q@@98 H<9=F F9G9FJ9G F9EI=F9A9BHG CF HC 69 BCH HCC :5F :FCA H<9 :I@Q@@A9BH C: H<9=F F9G9FJ9G 7HI5@@M 5 65B? A5M =BH9FDF9H 5 @=EI=8=HM 89Q7=H CB H<9 A5F?9H 6IH A5M BCH 69 56@9 HC HF589 CB H<=G =B:CFA5H=CB G=B79 =H A5M GH=@@ B998 HC :I@Q@ =HG F9G9FJ9 F9EI=F9A9BHG .B@=?9 =B H<9 GH5B85F8 ) AC89@ =BH9FDF9H5H=CB =B H<=G GD97=5@ 75G9 HF589G CDDCG=H9 HC H<9 A5F?9H G=;B5@ A=; 3%15%.4)!, 42!$% -/$%, G =B H<9 ) AC89@ 65B?G 5FF=J9 HC H<9 =BH9F65B? A5F?9H G9EI9BH=5@@M 5B8 A5?9 H<9=F 897=G=CBG CB K<9H<9F HC HF589 CF BCH -F589 =B H<9 =BH9F65B? A5F?9H =G ACH=J5H98 9GG9BH=5@@M 6M G -<9 HMD=75@ D5HH9FB C6G9FJ98 G=B79 K5G 5@H9F98 5:H9F H<9 9A9F;9B79 C: QB5B7=5@ HIFAC=@ =B I;IGH 5B8 H<9 :FCBH@C58=B; DC@=7M 7CB8I7H98 6M H<9 ECB Working Paper Series No 987 14 December 2008 A5F?9H G 5 7CBG9EI9B79 H<9 =B7F95G98 57H=J=HM =B H<9 =BH9F65B? A5F?9H 8IF=B; H<=G D9F=C8 75B 69 9LD97H98 HC F9J95@ A5F?9H D5FH=7=D5BHGT 5;;F9;5H9 @=EI=8=HM B998G 5B8 GC =AD9F:97H =B:CFA5H=CB G=;B5@G H HF99 HF589 DFC79GG ECB Working Paper Series No 987 December 2008 15 -<9 GHFI7HIF9 C: H<=G A5F?9H =G 7<5F57H9F=N98 6M H<9 G9H C: D5F5A9H9FG *O P -<9 D5F5A9H9F F9DF9G9BHG H<9 DFC656=@=HM H<5H =B:CFA5H=CB C77IFG CB H<9 A5F ?9H 8IF=B; 5 ;=J9B 85M #B 85MG K=H< 5 G=;B5@ =B:CFA98 85MG H<=G =B:CFA5H=CB =G 9LD97H98 HC 69 @=B?98 K=H< H<9 8=F97H=CB C: H<9 =BH9F9GH F5H9G CB H<9 6CFFCK=B; 6IM CF89FG CF CB H<9 @9B8=B; G=89 G9@@ CF89FG C: H<9 A5F?9H -<9 D5F5A9H9F A95GIF9G H<9 DFC656=@=HM H<5H G=;B5@ =G @CK = 9 H<5H =B:CFA5H=CB 69 D9F79=J98 5G 8F=J=B; H<9 DF=79 @CK9F H<5B =H 57HI5@@M =G =B5@@M H<9 5B8 D5F5A9H9FG 7<5F57H9F=N9 H<9 GHFI7HIF9 C: H<9 DCDI@5H=CB C: 65B?G 57H=B; =B H<9 ACB9M A5F?9H 5B8 H<9=F DFCD9BG=HM HC G9@@ CF 6IM ;=J9B H<9 B5HIF9 C: H<9 85M 5B8 H<9 HMD9 C: G=;B5@ .&/2-%$ 42!$% 63 5.).&/2-%$ 42!$% GGIA=B; H<5H G9EI9BH=5@ HF589 AC89@G F9DF9G9BH 589EI5H9@M H<9 HF58=B; A97< 5B=GA =B H<9 ACB9M A5F?9H =H =G DCGG=6@9 HC 75@7I@5H9 H<9 DFC656=@=HM C: 69=B; =B 5B =B:CFA98 85M K=H< 5 @CK CF 5 <=;< G=;B5@ CF H<9 DFC656=@=HM HC 69 =B 5 85M K=H -MD=75@@M =G 5@K5MG EI=H9 <=;< =B QB5B7=5@ A5F?9HG 5G@9M %=9:9F 5B8 ) T"5F5 9GH=A5H9 HC 69 5FCIB8 :CF 5B 5GG9H HF5898 CB H<9 ' 1 K<=7< =B8=75H9G H<5H J9FM :9K 85MG 5F9 BCB =B:CFA98 -<9 @9J9@ C: @=EI=8=HM DCGG9GG98 6M 5 65B? =B H<=G 7CBH9LH =G 5GG=A=@98 HC =BJ9BHCFM 7CBGHF5=BHG #H GIDDCG9G =H 9L=GHG 5B CDH=A5@ @9J9@ C: @=EI=8=HM :CF 65B?G HC 7CAD@M K=H< F9G9FJ9 F9EI=F9A9BHG 5B8 5IHCBCACIG :57HCFG -<9 7CBGHF5=BH F9DF9G9BHG H<9 89G=F9 BCH HC 69 HCC :5F :FCA H<=G CDH=A5@ @9J9@ ECB Working Paper Series No 987 16 December 2008 CADCIB8=B; H<9G9 DFC656=@=H=9G =B5@@M 7CBG=89F=B; 5 G9EI9B79 C: - 85MG 5B8 5GGIA=B; H<5H 85MG 5F9 =B89D9B89BH :FCA 957< CH<9F H<9 @=?9@= ,CA9 F9GHF=7H=CBG 75B 69 =ADCG98 HC H<9 G9H C: D5F5A9H9FG HC G=AD@=:M H<9 AC89@ 5B8 HC :C7IG CB H<9 56=@=HM C: 65B?G HC =B7CFDCF5H9 =B:CFA5H=CB =FGH IB=B:CFA98 HF589FG G9@@9FG CF 6IM9FG 5F9 GIDDCG98 HC <5J9 H<9 G5A9 =BH9BG=HM = 9 G97CB8 F9GHF=7H=CB =G HC 7CBG=89F H<5H 69=B; 5B IB=B:CFA98 G9@@9F <5G H<9 G5A9 DFC656=@=HM 5G 69=B; 5B IB=B:CFA98 6IM9F = 9 #B H<=G K5M H<9 G9H C: D5F5A9H9FG F98I79G HC CB@M :CIF = 9 5G98 CB H<9 F98I798 :CFA H<9 A5L=AIA @=?9@= K<9F9 -C 9GH=A5H9 H<9G9 D5F5A9H9FG =H =G B979GG5FM HC 89F=J9 H<9 GHFI7HIF9 C: H<9HF589 RCKG = 9 H<9 BIA69F C: 6IM 6CFFCK=B; G9@@ @9B8=B; 5B8 BC HF589 CF89FG CB 5 ;=J9B 85M ,97H=CB DF9G9BHG GH5B85F8 9GH=A5H=CB DFC798IF9G IG=B; 5 7@5GG=Q75H=CB C: HF589G K<=7< <5G 699B 58CDH98 ;=J9B H<9 CB@M D5FH=5@ =B:CFA5H=CB CB H<9 5J5=@56@9 85H5G9H CB H<9 CJ9FB=; 39--%42)# ).&/2-!4)/. !.$ -!2+%4 ,)15)$)49 -C IB89FGH5B8 #ADCG=B; H<=G G=AD@=Q75H=CB DF9J9BHG :FCA 5B5@MG=B; H<9 9Y97HG C: H<9 5J9F5;=B; A97<5B=GAG C: F9G9FJ9 F9EI=F9A9BHG =B H<9 CD9F5H=CB5@ :F5A9KCF? 5:H9F H<9 7<5B;9G HC H<9 CD9F5H=CB5@ :F5A9KCF? "CK9J9F G=B79 H<9 D5D9F =G DF=A5F=@M :C7IG98 CB 5GD97HG F9@5H98 HC =B:CFA5H=CB 8=G7@CGIF9 H<=G G=AD@=Q75H=CB 8C9G BCH 5DD95F HC @=A=H H<9 J5@=8=HM C: H<9 F9GI@HG ECB Working Paper Series No 987 December 2008 17 F=G? H<5H 5 65B? :579G K<9B HF58=B; K=H< 5 69HH9F =B:CFA98 65B? CB H<9 8=F97H=CB C: H<9 =BH9F9GH F5H9 -<9 *#( 89D9B8G 7FI7=5@@M H<9 HCH5@ DFC656=@=HM C: HF5898IF=B; =B:CFA98 85MG = 9 A5F?9H @=EI=8=HM 89QB98 5G 5G98 CB H<9 HF99 89G7F=6=B; H<9 HF589 DFC79GG =B =;IF9 H<9 D5F5A9H9F =G 9EI5@ HC =B BCB =B:CFA98 85MG 5B8 8IF=B; =B:CFA98 85MG <9B79 H<9 *#( =G 89QB98 5G G =B H<9 7@5GG=75@ ) AC89@ H<9 *#( A95GIF9G H<9 =AD@=7=H F=G? :CF GCA9 65B?G HC IB=BH9BH=CB5@@M 7F95H9 HF589 CDDCFHIB=H=9G :CF CH<9F 65B?G 6975IG9 H<9M 5F9 @9GG =B:CFA98 H<5B H<9=F 7CIBH9FD5FH=9G -<9 *#( =G @CK K<9B =G <=;< 5B8 =BJ9FG9@M =H =G <=;< K<9B G - ( + ,.&-, !4!3%4 G 5@F958M 89G7F=698 H<9 CJ9FB=; ,99 FCIGG95I ECB Working Paper Series No 987 18 December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orking Paper Series No 987 December 2008 19 897@=B9 =B H<9 5G? 5B8 5B =B7F95G9 =B H<9 6=8 7CAD5F=B; 56GC@IH9 ACJ9G CB 957< G=89 =G 7@5GG=Q98 5G 6IM CF89F =: H<9 =B7F95G9 =B H<9 6=8 =G 6=;;9F H<5B H<9 897F95G9 C: H<9 5G? H<9G9 75G9G 8C BCH 5DD95F =B =;IF9 ,H958M 6=8 5B8 5G? DF=79G CF GMAA9HF=7 F9J=G=CBG 7<5F57H9F=N9 H<9 56G9B79 C: HF589 -<=G A5M CB@M C77IF 6975IG9 C: 5 7<5B;9 =B A5F?9H @=EI=8=HM 8I9 HC @5F;9 JC@5H=@=HM CF HC 5B =B7F95G9 =B IB79FH5=BHM 75G9 5B8 =B =;IF9 GIAA5FM C: H<9G9 J5F=CIG 75G9G =G ;=J9B =B =;IF9 @5GG=Q75H=CB C: HF589G 65G98 CB 6=8 5B8 5G? J5F=5H=CBG -<=G 7@5GG=Q75H=CB =G 5DD@=98 HC ACF9 H<5B 5J5=@56@9 EICH98 GDF958G 5=@M GIA C: G9@@ CF89FG 6IM CF89FG 5B8 BC HF589 CF89FG 5F9 7CADIH98 =;IF9G 5B8 G 320 280 number of days number of days 280 240 240 Buy orders 200 Sell orders 200 160 160 120 120 80 80 40 40 0 0 0 10 20 30 40 50 0 10 20 30 40 50 number of borrowing contracts number of lending contracts =;IF9 8=GHF=6IH=CB C: IM CF89FG =;IF9 8=GHF=6IH=CB C: ,9@@ CF89FG #B H<9 K ECB Working Paper Series No 987 20 December 2008 160 number of days 140 120 No trade 100 80 60 40 20 0 25 50 75 100 number of "no contracts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orking Paper Series No 987 December 2008 21 K<=7< A95BG H<5H CF89FG 5F9 ACF9 @=?9@M HC 69 G9@@ =B=H=5H98 = 9 @9B8=B; 7CBHF57HG 8IF=B; 9L79GG @=EI=8=HM D9F=C8 CB H<9 A5F?9H 5F9 F9@5H=J9@M ACF9 :F9EI9BHH<5B 6IM =B=H=5H98 #B CH<9F KCF8G 65B?G H9B8 HC 69@=9J9 H<5H =B:CFA5H=CB 8F=J9B CF89FG F9J95@ 9L79GG @=EI=8=HM GIDD@M CB H<9 A5F?9H F5H<9F H<5B H<9 CDDCG=H9 -<=G F9GI@H 7CBQFAG H<5H 65B?G 5F9 ACF9 9LDCG98 HC F=G? K<9B H<9 @=EI=8=HM =G G75F79 H<5B K<9B @=EI=8=HM =G 56IB85BH -<=F8 GI;;9GHG H<5H 65B?G H9B8 HC 69@=9J9 H<5H C6G9FJ98 CF89FG 5F9 =B:CFA5H=CB 8F=J9B K=H< 5 DFC656=@=HM C: CB@M C: CF89FG C6G9FJ98 =B H<9 A5F?9H 5F9 899A98 HC 7CA9 :FCA 9X7=9BH@M =B:CFA98 65B?G CF H<9 ACB9M A5F?9H H<9 =BH9FDF9H5H=CB C: H<9 D5F5A9H9F =G ACF9 F9GHF=7H=J9 H<5B =B H<9 GH5B85F8 *#( AC89@ G=B79 =H CB@M H5?9G =BHC 577CIBH H<9 65B?G H<5H 5F9 =B:CFA98 5B8 K<=7<<5J9 9X7=9BH@M :I@Q@@98 H<9=F F9G9FJ9 F9EI=F9A9BHG CIFH< =B8=75H9G H<5H H<9 DFC656=@=HM C: @=EI=8=HM HF589 =G CB@M 5FCIB8 IF=B; =B:CFA98 85M H<=G D5F5A9H9F F9DF9G9BHG A5F?9H @=EI=8=HM K<=7< 7CA9G :FCA IB=B:CFA98 65B?G K<=@9 8IF=B; IB=B:CFA98 85MG =H 7C=B7=89G K=H< HCH5@ @=E I=8=HM 5J5=@56@9 =B H<9 A5F?9H 6975IG9 CB@M IB=B:CFA98 HF589FG 5F9 57H=J9 CB H<9 A5F?9H FCA EI5H=CB H<9 DFC656=@=HM C: HF589 8IF=B; =B:CFA98 85MG =G = 9 5 B9K EICH9 9J9FM A=BIH9G FCA EI5H=CB H<9 DFC656=@=HM C: =B:CFA98 HF589 *#( =G CB H<9 7CAD@9H9 G5AD@9 -<=G F9GI@H GI;;9GHG H<5H 5 65B? =BJC@J98 =B 5B CJ9FB=; '+% - & +(#(! ( -" +)& ) #( )+'-#)( #( "#,-)+# & * +,* -#/ -<9 B9LH GH9D =G HC 5B5@MN9 ECB Working Paper Series No 987 22 December 2008 "2%!+ ). 4(% ,%!2.).' 02/#%33 -<9 :CIF D5B9@G C: =;IF9 DF9G9BH H<9 F9GI@HG C: H<9 D5F5A9H9FG 9GH=A5H9G 7CADIH98 :FCA H<9 FC@@=B; G5AD@9G 89G7F=698 69:CF9 0,5 0,9 0,4 0,8 0,7 0,3 0,6 0,2 0,5 0,1 0,4 0 Nov-01 Nov-07 Nov-05 Nov-03 Nov-06 Nov-04 Nov-02 May-07 May-05 May-03 May-06 May-04 May-02 Nov-01 Nov-07 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 May-07 May-02 May-03 May-04 May-05 May-06 0,5 0,5 0,4 0,4 0,3 0,3 0,2 0,2 0,1 0,1 0 0 Nov-01 Nov-07 Nov-05 Nov-03 Nov-06 Nov-04 Nov-02 May-07 May-05 May-03 May-06 May-04 May-02 Nov-01 Nov-07 Nov-05 Nov-03 Nov-06 Nov-04 Nov-02 May-07 May-05 May-03 May-06 May-04 May-02 +C@@=B; 7C9X7=9BHG :FCA H<9 ) AC89@ :H9F 5B =B=H=5@ 897@=B9 H<9 :F57H=CB C: =B:CFA98 85MG 6FC58@M GH56=@=N98 5H 5FCIB8 7CFF9GDCB8=B; HC 56CIH 85MG =B 5 A5=BH9B5B79 D9F=C8 IBH=@ H<99B8 C: #B ECB Working Paper Series No 987 December 2008 23 C: H<9 HC H<9 HIFAC=@ 5B8 H<9 =B7F95G9 =B @=EI=8=HM 5@@CHA9BH =B5@@M H<9 <=GHCF=75@ 9JC@IH=CB C: H<9 *#( =GG 0,60 4,50 Frequent FTOs 'Loose' liquidity policy Announcement of changes to the Eurosystem's operational framework 0,55 4,00 0,50 3,50 Implementation of the changes to the 0,45 Eurosystem's operational framework 3,00 (10 March 2004) 0,40 2,50 Financial markets turmoil 0,35 2,00 Minimum Bid Rate at the weekly MROs 0,30 1,50 Feb-07 Feb-05 Feb-02 Feb-03 Feb-04 Feb-06 Nov-01 Feb-08 Aug-07 Aug-05 Aug-02 Aug-03 Nov-07 Aug-04 Aug-06 Nov-05 Nov-02 Nov-03 Nov-04 Nov-06 May-07 May-05 May-02 May-03 May-04 May-06 <=GHCF=75@ 9JC@IH=CB C: H<9 *#( )J9F5@@ 5B =B7F95G=B; HF9B8 =G C6G9FJ56@9 69HK99B 5B8 K<=7< F9J9FG98 5:H9F 5B8 5779@9F5H98 :FCA H<9 9B8 C: -<=G B9;5H=J9 HF9B8 75A9 HC 5B 9B8 HCK5F8G H<9 9B8 C: 5B8 =H F9J9FG98 5;5=B 5:H9FK5F8G HC F957< 5 D95? =B H<9 GIAA9F C: = 9 5H 5FCIB8 H<9 CBG9H C: QB5B7=5@ A5F?9H HIFAC=@ #H =G =BH9F9GH=B; HC C6G9FJ9 H<5H H<9 F957H=CB C: *#( GH5FH98 K9@@ 69:CF9 H<9 CIH6F95? C: H<9 HIF6I@9B79 =B H<9 9IFC ACB9M A5F?9H H<9F96M GI;;9GH=B; 5 DCGG=6@9 @958=B; DFCD9FHM C: H<9 =B89L K<=7< KCI@8 89G9FJ9 :IFH<9F F9G95F7< =J9 D5FH=7I@5F 9J9BHG 5DD95F HC <5J9 9L9FH98 GCA9 =BRI9B79 CB H<9 <=GHCF=75@ 89J9@CDA9BHG C: H<9 *#( -<9 QFGH 7C=B7=89G K=H< H<9 5BBCIB79A9BH A589 6M H<9 CB $5BI5FM CB H<9 :CFH<7CA=B; 7<5B;9G HC H<9 CD9F5H=CB5@ :F5A9 KCF? C@@CK=B; H<9 D9F=C8 7<5F57H9F=N98 6M 5B =B7F95G=B; *#( K<=7< A=FFCFG H<9 =B7F95G=B; <9H9FC;9BCIG ?BCK@98;9 C: H<9 CD9F5H=CB5@ :F5A9KCF? 6M A5F?9HD5FH=7 =D5BHG H<9 5BBCIB79A9BH C: H<9 B9K FI@9G 8=G7CBH=BI98 H<=G DFC79GG 5B8 H<9G<5F9 C: =B:CFA98 HF589 6FC58@M GH56=@=N98 -<=G 75B DCGG=6@M 69 F9@5H98 HC H<9 :57H H<5H ACGH 9LD9FH HF589FG AC8=Q98 H<9=F HF58=B; 69<5J=CF HC 5BH=7=D5H9 5B8 9LD@C=H GCA9 :CFH<7CA=B; FI@9G C: H<9 F9:CFA98 :F5A9KCF? FCA '5F7< = 9 :FCA H<9 57HI5@ =AD@9A9BH5H=CB C: H<9 B9K FI@9G <9H9FC;9B9=HM =B7F95G98 DCGG=6@M F9R97H=B; 5 8=Y9F9BH 89;F99 C: 5GG=A=@5H=CB C: H<9 B9K FI@9G =B H<9 7CAAIB=HM C: HF589FG 5B8 H<9 F9@5H=J9 58J5BH5;9 =B HF589 ECB Working Paper Series No 987 24 December 2008 C: =B:CFA98 65B?G FCA H<9 D9FGD97H=J9 C: H<9 9B<5B798 =B:CFA5H=CB DFCJ=898 HC H<9 A5F?9H 5:H9F H<9 F9:CFA 5 DCGG=6@9 9LD@5B5H=CB =G H<5H GCA9 HF589FGT 7CI@8 69HH9F IB89FGH5B8 A5F?9H A97<5B=GAG =B GCA9 75G9G K<9F95G =B A5BM CH<9F 75G9G 65B?G K9F9 BCH :I@@M 56@9 HC DFC79GG H<9 =B:CFA5H=CB 89@=J9F98 HC H<9 A5F?9H -<=G =G 9GD97=5@@M 9J=89BH IBH=@ (CJ9A69F = 9 G=L CF G9J9B ACBH ,99 BB9L :CF ACF9 89H5=@G ECB Working Paper Series No 987 December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orking Paper Series No 987 26 December 2008 5B8 =B D5FH=7I@5F 5:H9F H<9 5@ACGH GMGH9A5H=7 7CB8I7H C: -)G 5H H<9 9B8 C: H<9 F9G9FJ9 A5=BH9B5B79 D9F=C8 5B8 H<9 @CCG9 5@@CHA9BHG =B5@@M 5 G=AD@9 A9H Proportion of informed days knowing that we have X remaining days before the end of the MP 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 01234567891011121314151617 29/11/2000-09/03/2004 10/03/2004-15/12/2006 #B:CFA5H=CB RCKG K=H<=B A5=BH9B5B79 D9F=C8G -<9 =B:CFA5H=CB RCK =G F9@5H=J9@M @9GG 7CB79BHF5H98 CB GD97=Q7 85MG 69:CF9 '5F7< K<=7< A=; -<=G =G 5@GC J=G=6@9 =B 5 ACF9 A5F?98 H9B89B7M C: 65B?G HC 6=8 ACF9 5;;F9GG=J9@M 5H H<9 K99?@M '+)G 5B8 =B D5FH=7I@5F 5H H<9 @5GH F9QB5B7=B; CD9F5H=CB C: H<9 A5=BH9B5B79 D9F=C8 ECB Working Paper Series No 987 December 2008 27 (% ;.!.#)!, -!2+%4 452-/), -<=G HIFAC=@ A5=B@M 5Y97H98 ACB9M A5F?9HG 5B8 A5H9F=5@=N98 =B 5 A5F?98 5B8 GI889B F98I7H=CB C: A5F?9H @=EI=8=HM G 5B =AA98=5H9 7CBG9EI9B79 G &=A=H=B; HC H<9 GC@9 9IFC 5F95 GH5FH=B; :FCA I;IGH H<9 897=898 HC 7CB8I7H H<9 :C@@CK=B; CD9F5H=CBG H ECB Working Paper Series No 987 28 December 2008 697CA9 ACF9 F9;I@5F 5B8 GC 8=8 H<9 DFCJ=G=CB C: @=EI=8=HM HC H<9 ACB9M A5F?9H 0,55 0,5 0,45 0,4 0,35 Nov-01 Nov-07 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 May-07 May-02 May-03 May-04 May-05 May-06 A5F?9H @=EI=8=HM 69HK99B 5B8 A5F7< G F9;5F8G H<9 9JC@IH=CB C: H<9 *#( 69HK99B $5BI5FM 5B8 '5F7< =; IF9 H<9 DFC;F9GG=J9 897@=B9 C: 65B?GT =B:CFA5H=CB <9H9FC;9B9=HM K<=7< GH5FH98 =B 75A9 HC 5 <5@H =B DF=@ = 9 56CIH :CIF ACBH 0,6 0,5 0,4 0,3 Jul-07 Oct-07 Jan-07 Feb-07 Apr-07 Sep-07 Jun-07 Dec-07 Jan-08 Feb-08 Nov-07 Aug-07 Mar-07 May-07 Mar-08 9JC@IH=CB C: H<9 *#( =B -<9 897=G=CB HC GIDD@M 5 A5GG=J9 5ACIBH C: @=EI=8=HM =B H<9 ACB9M A5F?9H J=G=6@M F98I798 5ACB; CH<9F 9Y97HG H<9 DCH9BH=5@ :CF 5 GHF5H9;=7 IG9 C: DF=J5H9 =B:CFA5H=CB ECB Working Paper Series No 987 December 2008 29 6M 65B?G =B5@@M 7CBG=89F=B; BC =BH9FJ9BH=CB CB @=EI=8=HM 5@@CHA9BH8IF=B; H<9 HIFAC=@ = 9 K=H< 5 7CBGH5BH H<9 *#( KCI@8 <5J9 =B7F95G98 :FCA HC =B #B CH<9F KCF8G H<9 F=G? C: 5GMAA9HF=7 =B:CFA5H=CB KCI@8 <5J9 699B 5@ACGH <=;<9F H<5B =H <58 57HI5@@M 699B -C 7CB7@I89 5 DCGG=6@9 =BH9FDF9H5H=CB 65G98 CB H<9 *#( A95GIF9 =G H<5H H<9 TG F9GDCBG9 HC H<9 HIFAC=@ <5G 5DD5F9BH@M 897F95G98 H<9 5GMAA9HF=7 =B:CFA5 H=CB F=G? CB H<9 ACB9M A5F?9H 6M 95G=B; HF5BG57H=CBG 5ACB; 65B?G )( &.,#)( -<9 D5D9F DF9G9BHG 5B 9AD=F=75@ A=7FCGHFI7HIF9 5B5@MG=G C: H<9 9IFC CJ9FB=; ECB Working Paper Series No 987 30 December 2008 5ACIBH G=B79 )7HC69F <5J9 F98I798 H<9 =AD57H C: =B:CFA5H=CB 5GMAA9HF=9G =B5@@M H<9 IG9 6M H<9 C: H<9 5J5=@56@9 =BGHFIA9BHG 8IF=B; GD97=5@ 9J9BHG 5G =B H<9 QB5B7=5@ HIFAC=@ <5J9 G ECB Working Paper Series No 987 December 2008 31 BB9L (% 2%&/2- /& 4(% 52/3934%-<3 /0%2!4)/.!, &2!-%7/2+ C7IG=B; CB H<9 <=GHCFM C: H<9 IFCGMGH9A 5:H9F H<9 ACGH BCH56@9 7<5B;9G K9F9 =BHFC8I798 HC CJ9F7CA9 GCA9 =GGI9G 9A9F;98 =B H<9 A97<5B=GAG =B D@579 HC GIDD@M @=EI=8=HM 5B8 HC 9BGIF9 5 GACCH< @=EI=8=HM DFCJ=G=CB HC 65B?G -KC 9@9A9BHG K9F9 897=G=J9 HC ACH=J5H9 H<9 7<5B;9G CJ9F6=88=B; = 9 H<9 H9B89B7M C: 65B?G HC GI6A=H 6=8G C: =B7F95G=B;@M G=N956@9 5ACIBH 5H H<9 K99?@M H9B89F HC 5JC=8 @=EI=8=HM F5H=CB=B; 5B8 IB89F6=88=B; = 9 5 D<9BCA9BCB K<=7< HCC? D@579 K<9B 6=8G 8=8 BCH 9BH=F9@M 7CJ9F H<9 @=EI=8=HM 5ACIBH K<=7< H<9 79BHF5@ 65B? =BH9B898 HC 5@@CH -C GHCD CJ9F6=88=B; QL98 F5H9 H9B89FG = 9 H9B89FG =B K<=7< 65B?G CB@M F9 EI9GH98 EI5BH=H=9G G=B79 H<9 DF=79 K5G 897=898 6M H<9 79BHF5@ 65B? K9F9 565B8CB98 =B $IB9 -<9M K9F9 F9D@5798 6M J5F=56@9 F5H9 H9B89FG = 9 5I7H=CBG K<9F9 65B?G CY9F 5 DF=79 =B 588=H=CB HC H<9 89A5B898 5ACIBH C: @=EI=8=HM -<=G 7<5B;9 8=857HI 5@@M GI77998 =B GHCDD=B; CJ9F6=88=B; 5B8 K=H< :9K 9L79DH=CBG -<9 F5H9G F9GI@H=B; :FCA K99?@M H9B89FG <5J9 HIFB98 HC 69 K9@@ 5B7 -<9 6I@? C: @=EI=8=HM =G GIDD@=98 =B CB@M CB9 CD9F5H=CB 5B8 BC @CB;9F =B HKC CIHGH5B8=B; CD9F5H=CBG H H<9 G5A9 H=A9 H<9 A5HIF=HM C: 957< A5=B F9Q B5B7=B; CD9F5H=CB K5G G CB8=H=CBG CB ACB9H5FM DC@=7M =BH9F9GH F5H9G 5F9 5DD@=98 5G C: 5 B9K F9G9FJ9 A5=BH9B5B79 D9F=C8 5B8 BC @CB;9F =AA98=5H9@M 5:H9F H<9 897=G=CB =G A589 -<9 GH5FH 5B8 H<9 9B8 C: F9G9FJ9 A5=BH9B5B79 D9F=C8 =G F9@5H98 HC H<9 85H9 C: H<9 !CJ9FB=B; CIB7=@ A99H=B; =B K<=7< ACB9H5FM DC@=7M 897=G=CBG 5F9 A589 = 9 BCFA5@@M CB H<9 QFGH - 9:CF9 '5F7< IB89F6=88=B; HCC? D@579 69:CF9 =BH9F9GH F5H9 7IHG =B H ECB Working Paper Series No 987 32 December 2008 #B H<=G K5M F9G9FJ9 A5=BH9B5B79 D9F=C8 F9GI@H98 69HH9F G9;A9BH98 5B8 5BM =BH9F:9F9B79 C: ACB9H5FM DC@=7M 897=G=CBG CB @=EI=8=HM A5B5;9A9BH K5G F9ACJ98 5B8 GC K9F9 7CB8=H=CBG :CF IB89F6=88=B; HC H5?9 D@579 -<9G9 7<5B;9G H<9 69B7 H<9 ID85H98 69B7 H<9 ID85H98 5IHCBCACIG :57HCF :CF975GHG CB H<9 5@@CHA9BH 85M C: H<9 '+) 5:H9F H<9 5@@CHA9BH 897=G=CB 5B8 69B7 #B DF57H=79 H<9 =B:CFA5H=CB 8=G7@CG98 6M H<9 7<5B;98 :FCA =;IF9 HC =;IF9 K<=7< =AD@=98 5 GI6GH5BH=J9 9B<5B79A9BH #B H<=G K5M 5H @95GH =B DF=B7=D@9 TG 897=G=CBG CB 5@@CHA9BH 6975A9 :I@@M HF5BGD5F9BH G97CB8 A95GIF9 K5G 5 A5F?98 =B7F95G9 =B H<9 :F9EI9B7M C: QB9 HIB=B; CD9F 5H=CBG 7CB8I7H98 5H H<9 9B8 C: F9G9FJ9 A5=BH9B5B79 D9F=C8G HC F9 9GH56@=G -<9 69B7 ECB Working Paper Series No 987 December 2008 33 %54%23 #2%%. G7F99B 69:CF9 '5F7< ,7F99B 5:H9F '5F7< ECB Working Paper Series No 987 34 December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orking Paper Series No 987 December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orking Paper Series No 987 36 December 2008 European Central Bank Working Paper Series For a complete list of Working Papers published by the ECB, please visit the ECB’s website (http://www.ecb.europa.eu). 929 “Real convergence in Central and Eastern European EU Member States: which role for exchange rate volatility?” by O. Arratibel, D. Furceri and R. Martin, September 2008. 930 “Sticky information Phillips curves: European evidence” by J. Döpke, J. Dovern, U. Fritsche and J. Slacalek, September 2008. 931 “International stock return comovements” by G. Bekaert, R. J. Hodrick and X. Zhang, September 2008. 932 “How does competition affect efficiency and soundness in banking? New empirical evidence” by K. Schaeck and M. Čihák, September 2008. 933 “Import price dynamics in major advanced economies and heterogeneity in exchange rate pass-through” by S. Dées, M. Burgert and N. Parent, September 2008. 934 “Bank mergers and lending relationships” by J. Montoriol-Garriga, September 2008. 935 “Fiscal policies, the current account and Ricardian equivalence” by C. Nickel and I. Vansteenkiste, September 2008. 936 “Sparse and stable Markowitz portfolios” by J. Brodie, I. Daubechies, C. De Mol, D. Giannone and I. Loris, September 2008. 937 “Should quarterly government finance statistics be used for fiscal surveillance in Europe?” by D. J. Pedregal and J. J. Pérez, September 2008. 938 “Channels of international risk-sharing: capital gains versus income flows” by T. Bracke and M. Schmitz, September 2008. 939 “An application of index numbers theory to interest rates” by J. Huerga and L. Steklacova, September 2008. 940 “The effect of durable goods and ICT on euro area productivity growth?” by J. Jalava and I. K. Kavonius, September 2008. 941 “The euro’s influence upon trade: Rose effect versus border effect” by G. Cafiso, September 2008. 942 “Towards a monetary policy evaluation framework” by S. Adjemian, M. Darracq Pariès and S. Moyen, September 2008. 943 “The impact of financial position on investment: an analysis for non-financial corporations in the euro area” by C. Martinez-Carrascal and A. Ferrando, September 2008. 944 “The New Area-Wide Model of the euro area: a micro-founded open-economy model for forecasting and policy analysis” by K. Christoffel, G. Coenen and A. Warne, October 2008. 945 “Wage and price dynamics in Portugal” by C. Robalo Marques, October 2008. 946 “Macroeconomic adjustment to monetary union” by G. Fagan and V. Gaspar, October 2008. 947 “Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity” by M. M. Habib and M. Joy, October 2008. ECB Working Paper Series No 987 December 2008 37 948 “Clustering techniques applied to outlier detection of financial market series using a moving window filtering algorithm” by J. M. Puigvert Gutiérrez and J. Fortiana Gregori, October 2008. 949 “Short-term forecasts of euro area GDP growth” by E. Angelini, G. Camba-Méndez, D. Giannone, L. Reichlin and G. Rünstler, October 2008. 950 “Is forecasting with large models informative? Assessing the role of judgement in macroeconomic forecasts” by R. Mestre and P. McAdam, October 2008. 951 “Exchange rate pass-through in the global economy: the role of emerging market economies” by M. Bussière and T. Peltonen, October 2008. 952 “How successful is the G7 in managing exchange rates?” by M. Fratzscher, October 2008. 953 “Estimating and forecasting the euro area monthly national accounts from a dynamic factor model” by E. Angelini, M. Bańbura and G. Rünstler, October 2008. 954 “Fiscal policy responsiveness, persistence and discretion” by A. Afonso, L. Agnello and D. Furceri, October 2008. 955 “Monetary policy and stock market boom-bust cycles” by L. Christiano, C. Ilut, R. Motto and M. Rostagno, October 2008. 956 “The political economy under monetary union: has the euro made a difference?” by M. Fratzscher and L. Stracca, November 2008. 957 “Modeling autoregressive conditional skewness and kurtosis with multi-quantile CAViaR” by H. White, T.-H. Kim, and S. Manganelli, November 2008. 958 “Oil exporters: in search of an external anchor” by M. M. Habib and J. Stráský, November 2008. 959 “What drives U.S. current account fluctuations?” by A. Barnett and R. Straub, November 2008. 960 “On implications of micro price data for macro models” by B. Maćkowiak and F. Smets, November 2008. 961 “Budgetary and external imbalances relationship: a panel data diagnostic” by A. Afonso and C. Rault, November 2008. 962 “Optimal monetary policy and the transmission of oil-supply shocks to the euro area under rational expectations” by S. Adjemian and M. Darracq Pariès, November 2008. 963 “Public and private sector wages: co-movement and causality” by A. Lamo, J. J. Pérez and L. Schuknecht, November 2008. 964 “Do firms provide wage insurance against shocks? Evidence from Hungary” by G. Kátay, November 2008. 965 “IMF lending and geopolitics” by J. Reynaud and J. Vauday, November 2008. 966 “Large Bayesian VARs” by M. Bańbura, D. Giannone and L. Reichlin, November 2008. 967 “Central bank misperceptions and the role of money in interest rate rules” by V. Wieland and G. W. Beck, November 2008. 968 “A value at risk analysis of credit default swaps” by B. Raunig and M. Scheicher, November 2008. 969 “Comparing and evaluating Bayesian predictive distributions of asset returns” by J. Geweke and G. Amisano, November 2008. ECB Working Paper Series No 987 38 December 2008 970 “Responses to monetary policy shocks in the east and west of Europe” by M. Jarociński, November 2008. 971 “Interactions between private and public sector wages” by A. Afonso and P. Gomes, November 2008. 972 “Monetary policy and housing prices in an estimated DSGE for the US and the euro area” by M. Darracq Pariès and A. Notarpietro, November 2008. 973 “Do China and oil exporters influence major currency configurations?” by M. Fratzscher and A. Mehl, December 2008. 974 “Institutional features of wage bargaining in 23 European countries, the US and Japan” by P. Du Caju, E. Gautier, D. Momferatou and M. Ward-Warmedinger, December 2008. 975 “Early estimates of euro area real GDP growth: a bottom up approach from the production side” by E. Hahn and F. Skudelny, December 2008. 976 “The term structure of interest rates across frequencies” by K. Assenmacher-Wesche and S. Gerlach, December 2008. 977 “Predictions of short-term rates and the expectations hypothesis of the term structure of interest rates” by M. Guidolin and D. L. Thornton, December 2008. 978 “Measuring monetary policy expectations from financial market instruments” by M. Joyce, J. Relleen and S. Sorensen, December 2008. 979 “Futures contract rates as monetary policy forecasts” by G. Ferrero and A. Nobili, December 2008. 980 “Extracting market expectations from yield curves augmented by money market interest rates: the case of Japan” by T. Nagano and N. Baba, December 2008. 981 “Why the effective price for money exceeds the policy rate in the ECB tenders?” by T. Välimäki, December 2008. 982 “Modelling short-term interest rate spreads in the euro money market” by N. Cassola and C. Morana, December 2008. 983 “What explains the spread between the euro overnight rate and the ECB’s policy rate?” by T. Linzert and S. Schmidt, December 2008. 984 “The daily and policy-relevant liquidity effects” by D. L. Thornton, December 2008. 985 “Portuguese banks in the euro area market for daily funds” by L. Farinha and V. Gaspar, December 2008. 986 “The topology of the federal funds market” by bMorten L. Bech and E. Atalay, December 2008. 987 “Probability of informed trading on the euro overnight market rate: an update” by J. Idier and S. Nardelli, December 2008. ECB Working Paper Series No 987 December 2008 39 Working Paper Series No 987 / DEcEMBER 2008 Probability of informed trading on the euro overnight market rate an update by Julien Idier and Stefano Nardelli