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The Impact of Central Bank Announcements on Asset Prices in Real Time

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Author Info
Carlo Rosa (Institute for the World Economy and Centre for Economic Performance)
Giovanni Verga (Department of Economics, University of Parma)

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Abstract

This paper examines the effect of European Central Bank (ECB) communication on the price discovery process in the Euribor futures market using a new tick-by-tick data set. First, we show that two pieces of news systematically hit financial markets on Governing Council meeting days: the ECB policy rate decision and the explanation of its monetary policy stance. Second, we find that the unexpected component of ECB explanations has a significant and sizable impact on futures prices. Third, we investigate how communication interacts with learning by the public about the credibility of the central bank: financial market participants needed around three years, from 1999 through 2001, to learn how to interpret and believe ECB announcements. Finally, our results suggest that the Euribor futures market is efficient.

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Publisher Info
Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 4 (2008)
Issue (Month): 2 (June)
Pages: 175-217
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Handle: RePEc:ijc:ijcjou:y:2008:q:2:a:5

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Find related papers by JEL classification:
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
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Refet Gurkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," Macroeconomics 0504013, EconWPA. [Downloadable!]
    Other versions:
  2. Claus Brand & Daniel Buncic & Jarkko Turunen, 2006. "The impact of ECB monetary policy decisions and communication on the yield curve," Working Paper Series 657, European Central Bank. [Downloadable!]
    Other versions:
  3. Michael Woodford, 2005. "Central-bank communication and policy effectiveness," Discussion Papers 0506-07, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  4. Antulio N. Bomfim, 2003. "Monetary policy and the yield curve," Finance and Economics Discussion Series 2003-15, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
  6. Carlo Rosa & Giovanni Verga, 2006. "The Impact of Central Bank Announcements on Asset Prices in Real Time: Testing the Efficiency of the Euribor Futures Market," CEP Discussion Papers dp0764, Centre for Economic Performance, LSE. [Downloadable!]
  7. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Blackwell Publishing, vol. 7(1), pages 1-24, 03. [Downloadable!] (restricted)
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  18. Jansen, David-Jan & De Haan, Jakob, 2005. "Talking heads: the effects of ECB statements on the euro-dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 343-361, March. [Downloadable!] (restricted)
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  22. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184 National Bureau of Economic Research, Inc. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jakob de Haan & David-Jan Jansen, 2009. "The communication policy of the European Central Bank: An overview of the first decade," DNB Working Papers 212, Netherlands Central Bank, Research Department. [Downloadable!]
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