Money Market Literature Review
Introduction Money market is a set of institutions, conventions and practices. It is aim of which is to facilitate the lending and borrowing of money on a short-term basis (Robert Vincent Roosa, 1-20-2015). Money market is a short term loans and its maturity is one year or less than one year. Example of money market is Treasury bills, certificates of deposit (CDs), bankers’ acceptances, commercial paper, federal funds and Eurocurrencies. Literature review The key issue from the source that had been found is to estimate the effects monetary policy has on interest rates in the private money market using market microstructure variables. Besides that, it also examines the impact of policy announcements on these rates. The volatility of interest …show more content…
Derek Leith analyze that the certificate of deposit (CD) fixed volumes and the total volume reduce volatility in the inter-bank money market rate. Besides that, variable rate CD is insignificant suggesting that it does not have an impact on money market rates. This is because the volatility persistence has increased when CD introduced but decreased with Central Bank (CB) deposits, volume total and the Bank of Jamaica (BOJ) Open Market Operation (OMO)’s. In policy announcements, BOJ OMO rate change provided increase in volatility persistence and its volatility. Presence of Government of Jamaica (GOJ) also increases the volatility of interest rates. As a conclusion, the announcement of fixed rate GOJ instrument and Cash Reserve Ratio (CRR) are insignificant implying that these announcements have no impact on rates in the inter-bank segment of the private money …show more content…
The elements are including monetary policy tools, news announcements of interest rate changes and the presence of the GOJ in the market. After the observation, Mr. Derek Leith proved that thirty-day market is more directly affected by monetary policy tools but overnight market is more directly affected by GOJ’s presence in the market. Finally, the segment that has the highest volatility is thirty-day segment while the segment that has the lowest volatility is inter-bank segment. There is no impact in the overnight money market. If the volatility of the thirty-day market increases, the volatility of interest rates in the inter-bank money market also will increase. This is due to the volatility spill-overs from the thirty-day market is to the inter-bank market but not to the overnight market because OMOs increase the volatility of the thirty-day segment and inter-bank segment. Monetary policy and GOJ issue announcement have impact on the interest rates. In particular, OMO rate change, GOJ issue date, GOJ variable instrument and CRR. After analyze the result, we know that there is a lack of volatility spillover in the overnight market. To solve this problem, we suggest that there must not to have a limitation to the development in the
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