Controllability and Persistence of Interest Rates; Operational Framework of Central Banks; Long Memory and Fractional Integration
337 International economics
Overnight money market rates are the predominant operational
target of monetary policy. As a consequence, central banks have re-
designed the implementation of monetary policy to keep the deviations
of the overnight rate from the key policy rate small and short-lived.
This paper uses fractional integration techniques to explore how the
operational framework of four major central banks affects the persis-
tence of overnight rates. Our results suggest that a well-communicated
and transparent interest rate target of the central bank is a particu-
larly important condition for a low degree of overnight rate persistence.
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