Money Market Integration

31 Pages Posted: 7 Nov 2005

See all articles by Leonardo Bartolini

Leonardo Bartolini

affiliation not provided to SSRN (deceased)

Spence Hilton

Federal Reserve Bank of New York - Research Group; National Bureau of Economic Research (NBER)

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

We use transaction-level data and detailed modeling of the high-frequency behavior of federal funds-Eurodollar yield spreads to provide evidence of strong integration between the federal funds and Eurodollar markets, the two core components of the dollar money market. Our results contrast with previous research indicating that these two markets are segmented, showing them to be well integrated even at high (intraday) frequency. We document several patterns in the behavior of federal funds-Eurodollar spreads, including liquidity effects from trading volume on yield spreads' volatility. Our analysis supports the view that targeting federal funds rates alone is sufficient to stabilize rates in the (much larger) dollar money market as a whole.

Keywords: federal funds, Eurodollar, market segmentation

JEL Classification: E43, E44, E52

Suggested Citation

Bartolini (deceased), Leonardo and Hilton, Spence and Prati, Alessandro, Money Market Integration (October 2005). FRB of New York Staff Report No. 227, Available at SSRN: https://ssrn.com/abstract=839846 or http://dx.doi.org/10.2139/ssrn.839846

Leonardo Bartolini (deceased) (Contact Author)

affiliation not provided to SSRN (deceased)

Spence Hilton

Federal Reserve Bank of New York - Research Group ( email )

33 Liberty Street
New York, NY 10045
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased ( email )