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New measures of monetary policy surprises and jumps in interest rates

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  • León, Ángel
  • Sebestyén, Szabolcs

Abstract

We propose new surprise measures to characterise two important dimensions of monetary policy. Our measures outperform the traditional monetary shocks in explaining variation of interest rates in the event-study framework. We also study the extent to which the ECB caused jumps in euro area interest rates. The new surprises still prevail upon the traditional ones. Jumps play a great role in the variation of interest rates and the ECB induced several jumps with its decisions, but its predictability has improved over time. We find that, although the surprise measures become somewhat distorted due to money market tensions during the financial turmoil, our model still provides an interesting insight into interest rate behaviour throughout the crisis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 8 ()
Pages: 2323-2343

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2323-2343

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Monetary policy surprises; Jumps; Interest rates; Principal components;

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References

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Citations

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Cited by:
  1. Ozdagli, Ali K., 2013. "Not so fast: high-frequency financial data for macroeconomic event studies," Working Papers 13-19, Federal Reserve Bank of Boston.
  2. Fiordelisi, Franco & Galloppo, Giuseppe & Ricci, Ornella, 2014. "The effect of monetary policy interventions on interbank markets, equity indices and G-SIFIs during financial crisis," Journal of Financial Stability, Elsevier, vol. 11(C), pages 49-61.
  3. Rosa, Carlo, 2013. "Market efficiency broadcasted live: ECB code words and euro exchange rates," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 167-178.

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