The Italian overnight market: microstructure effects, the martingale hypothesis and the payment system

This paper analyzes the Italian segment of the Eurozone money market since the start of the European Monetary Union. Some relevant variables are analyzed at different frequencies (intramonth, intraweek and intraday); both level and volatily of the overnight interest rate, volume exchanged in the Italian overnight market, domestic and cross-border large value payments channeled in the Italian real-time gross settlement system (BI-REL). Patterns against the martingale hypothesis on the short-term interest rate are detected, and the relationship between the payment flows and the rate itself is investigated. Overall, evidence comes out that in the new framework Italian banks seem to manage liquidity efficiently.