ZENITH International Journal of Business Economics & Management Research
Year : 2018, Volume : 8, Issue : 2
First page : ( 245) Last page : ( 261)
Online ISSN : 2249-8826.

The study of call money market by applying garch model

Dr. Choudhury Koel Roy

Assistant Professor, S.I.E.S (NERUL) College of Arts, Science and Commerce, Sector V Nerul, Navi Mumbai

Online published on 13 February, 2018.

Abstract

The money market is an important component of the financial system. The objective of monetary policy by the Central Bank is to align money market rates with the key policy rates. Efficient functioning of the money market is thus important for the effectiveness of monetary policy. Due to the increased importance of targeting a short-term interest rate in the transmission mechanism, it is appropriate to study the factors that influence this segment of the money market. In this paper, following the seminal work of Engle (1982) and Bollerslev (1986), we empirically investigate the liquidity in the overnight call money market using the GARCH model. Using the daily data of the Call rates; we construct the GARCH model to study the relationship between volatility and factors affecting them. We further study the effects of different monetary policy instruments like CRR, Repo rate, Reverse repo rate, Bank rate and Marginal Standing facility on Call rates. To account for structural breaks, CUSUM and Chow tests have been applied. Based on these tests, the entire series was divided into different sub-periods. Then for each sub-period, the GARCH model has been applied to study the GARCH effect for each of them.

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Keywords

Money Market, Call Rate, Monetary Policy, GARCH Model.

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