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Discussion Paper Details

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Title: The Microstructure of the Euro Money Market

Author(s): Philipp Hartmann, Michele Manna and Andres Manzanares

Publication Date: November 2001

Keyword(s): auctions, financial market microstructure, high-frequency data, monetary policy instruments, overnight deposit rates, payment systems, reserve requirements, trading volume and transaction costs

Programme Area(s): Financial Economics and International Macroeconomics

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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Bibliographic Reference

Hartmann, P, Manna, M and Manzanares, A. 2001. 'The Microstructure of the Euro Money Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3081