How to Measure the Unsecured Money Market? The Eurosystem's Implementation and Validation Using TARGET2 Data

46 Pages Posted: 2 Sep 2014

See all articles by Luca Arciero

Luca Arciero

Bank of Italy

Ronald Heijmans

De Nederlandsche Bank

Richard Heuver

De Nederlandsche Bank

Marco Massarenti

European Central Bank (ECB)

Cristina Picillo

Bank for International Settlements (BIS)

Francesco Vacirca

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2014

Abstract

This paper develops a methodology, based on Furfine (1999), for identifying unsecured interbank money market loans from the transaction data of the most important euro payment processing system TARGET2, for maturities ranging from one day (overnight) up to three months. The implementation has been verified with (i) interbank money market transactions executed on the e-MID Italian electronic trading platform and (ii) aggregated reporting by the EONIA panel banks. The Type2 (false negative) error for the best performing algorithm setup is 0.92%. We find aggregated interest rates very close to the EONIA but observe a high degree of heterogeneity across countries and market participants. The different stages of the global financial crisis and of the sovereign debt crises are clearly revealed in the interbank money market by significant drops in turnover. The results focus on three levels: euro-area, country group and country (Italy and the Netherlands).

Keywords: euro interbank money market, Furfine, TARGET2, financial stability, EONIA

JEL Classification: E42, E44, E58, G01

Suggested Citation

Arciero, Luca and Heijmans, Ronald and Heuver, Richard and Massarenti, Marco and Picillo, Cristina and Vacirca, Francesco, How to Measure the Unsecured Money Market? The Eurosystem's Implementation and Validation Using TARGET2 Data (April 23, 2014). Bank of Italy Occasional Paper No. 215, Available at SSRN: https://ssrn.com/abstract=2489875 or http://dx.doi.org/10.2139/ssrn.2489875

Luca Arciero (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Ronald Heijmans

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Richard Heuver

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Marco Massarenti

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cristina Picillo

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Francesco Vacirca

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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