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Monetary policy predictability in the euro area: an international comparison

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  • Bj�rn-Roger Wilhelmsen
  • Andrea Zaghini

Abstract

We evaluate the ability of market participants to anticipate monetary policy decisions in 14 countries. First, by looking at both the magnitude and volatility of changes in the money market rates we show that the days of policy meetings are special days for financial markets. Second, we find that the predictability of Federal Reserve (FED), Bank of England and European Central Bank (ECB) is fully comparable. Finally, an econometric analysis of the ability of market participants to incorporate in the current short-term interest rates the expected policy changes shows that in the euro area (and in other countries) policy decisions are anticipated well in advance.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 20 ()
Pages: 2533-2544

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Handle: RePEc:taf:applec:v:43:y:2011:i:20:p:2533-2544

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  1. Monika Piazzesi, 2002. "The Fed and Interest Rates - A High-Frequency Identification," American Economic Review, American Economic Association, vol. 92(2), pages 90-95, May.
  2. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2002. "Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(1), pages 137-59, February.
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  13. Selva Demiralp & Dennis Farley, 2003. "Declining required reserves, funds rate volatility, and open market operations," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-27, Board of Governors of the Federal Reserve System (U.S.).
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  15. Andrew G Haldane & Vicky Read, 2000. "Monetary policy surprises and the yield curve," Bank of England working papers 106, Bank of England.
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Citations

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Cited by:
  1. Marek Rozkrut, 2008. "It’s not only WHAT is said, it’s also WHO the speaker is. Evaluating the effectiveness of central bank communication," National Bank of Poland Working Papers 47, National Bank of Poland, Economic Institute.
  2. Bennani, Hamza, 2014. "The art of central banks' forward guidance at the zero lower bound," MPRA Paper 57043, University Library of Munich, Germany.
  3. Petra M. Geraats & Sylvester C.W. Eijffinger & Carin A.B. van der Cruijsen, 2006. "Does Central Bank Transparency Reduce Interest Rates?," DNB Working Papers, Netherlands Central Bank, Research Department 085, Netherlands Central Bank, Research Department.
  4. Claus Brand & Daniel Buncic & Jarkko Turunen, 2008. "The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve," Discussion Papers 2008-11, School of Economics, The University of New South Wales.
  5. Silvio Colarossi & Andrea Zaghini, 2009. "Gradualism, transparency and the improved operational framework: a look at the overnight volatility transmission," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 710, Bank of Italy, Economic Research and International Relations Area.
  6. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer, vol. 21(2), pages 241-261, June.
  7. Bennani, Hamza, 2014. "Does one word fit all? The asymmetric effects of central banks' communication policy," MPRA Paper 57150, University Library of Munich, Germany.
  8. Fabio Canova & Carlo Favero, 2005. "Monetary policy in the Euro area: Lessons from 5 years of ECB and implications for Turkey," Economics Working Papers 922, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Colarossi, Silvio & Zaghini, Andrea, 2007. "Gradualism, transparency and improved operational framework: A look at the overnight volatility transmission," CFS Working Paper Series 2007/16, Center for Financial Studies (CFS).
  10. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 176-206, March.
  11. Canova, Fabio & Favero, Carlo A, 2005. "Monetary Policy in the Euro Area: Lessons from Five Years of ECB and Implications for Turkey," CEPR Discussion Papers 5101, C.E.P.R. Discussion Papers.

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