Researchers propose adapted methodology to assess money market microstructure
Model is robust to effects of zero or negative interest rates, researchers say
A working paper published by the Bank of Italy proposes an adaptation of the standard methodology used to identify bilateral exposures in the interbank loan market.
The adapted model is set out in Estimating the money market microstructure with negative and zero interest rates, by Edoardo Rainone and Francesco Vacirca. They note an algorithm devised by Craig Furfine in a 1999 paper has been widely used in subsequent research efforts to identify such exposures.
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