A look at intraday frictions in the euro area overnight deposit market

Arbeitspapier

This paper studies frictions in the euro area interbank deposit overnight market, making use of high frequency individual quote and trade data. The aim of the analysis is to determine, in a quantitative way, how efficient this market is. Besides a comprehensive descriptive analysis, the approach used defines a measure of the friction arising for each single transaction, by which we understand an (small) initial loss accepted by a counterparty, and the corresponding gain made by the other counterparty. The evolution of total daily frictions is then put into perspective comparing it with the frictions arising if flows corresponded to the optimal solution of a “cash transportation problem”. The main conclusions of this exercise are that overall frictions, although small in absolute size, tend to increase strongly whenever the overnight rate becomes volatile. Some tentative explanations for this are given, relying on the introduced methodology.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 439

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Optimization Techniques; Programming Models; Dynamic Analysis
• Subject: Financial market microstructure ; Market friction ; money market ; Network optimization problems ; Geldmarkt ; Eurozone ; EU-Staaten ; Effizienzmarkthypothese

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Brousseau, Vincent ; Manzanares, Andrés
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/152873
• Last update: 10.03.2025, 11:43 AM CET