The Microstructure of the Euro Money Market

70 Pages Posted: 26 Feb 2003

See all articles by Philipp Hartmann

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

Michele Manna

Bank of Italy

Andres Manzanares

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2001

Abstract

This paper provides the first empirical examination of the microstructure of the euro money market, using tick data from brokers located in 6 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.

Keywords: euro; financial market microstructure; high-frequency data; liquidity; money market; monetary policy instruments; overnight deposit rates; payment systems; reserve requirements; trading volume; transaction costs; volatility

JEL Classification: G14, E43, E52, D44

Suggested Citation

Hartmann, Philipp and Manna, Michele and Manzanares, Andres, The Microstructure of the Euro Money Market (October 2001). Available at SSRN: https://ssrn.com/abstract=356226 or http://dx.doi.org/10.2139/ssrn.356226

Philipp Hartmann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)

Centre for Economic Policy Research (CEPR) - International Macroeconomics

London
United Kingdom

Michele Manna

Bank of Italy ( email )

via Nazionale 91
00184 Roma
Italy

Andres Manzanares

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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