Interest rate expectations and uncertainty during ECB Governing Council days: Evidence from intraday implied densities of 3-month EURIBOR
AbstractThis paper analyses changes in short-term interest rate expectations and uncertainty during ECB Governing Council days. For this purpose, it extends the estimation of risk-neutral probability density functions up to tick frequency. In particular, the non-parametric estimator of these densities, which is based on fitting implied volatility curves, is applied to estimate intraday expectations of 3-month EURIBOR 3months ahead. Estimates of the noise impact on the statistical moments of the densities enhance the interpretation. In addition, the paper assesses the impact of the ECB communication during Governing Council days. The results show that the whole density may react to the communication and that such repositioning of market participants’ expectations will contain information beyond that of changes in the consensus view already observed in forward rates. The results also point out the relevance of the press conference in providing extra information and triggering an adjustment process for interest rate expectations.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 36 (2012)
Issue (Month): 10 ()
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Web page: http://www.elsevier.com/locate/jbf
Risk-neutral probability density functions; Option-implied densities; Interest rate expectations; Central bank communication; Intraday analysis; Announcement effects; Tick data;
Other versions of this item:
- Vergote, Olivier & Puigvert Gutiérrez, Josep Maria, 2011. "Interest rate expectations and uncertainty during ECB governing council days: evidence from intraday implied densities of 3-month Euribor," Working Paper Series 1391, European Central Bank.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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