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News and Interest Rate Expectations: A Study of Six Central Banks

In: The Future of Inflation Targeting

Author

Listed:
  • Ellis Connolly

    (Reserve Bank of Australia)

  • Marion Kohler

    (Reserve Bank of Australia)

Abstract

In this paper we analyse the effect of news relating to the expected path of monetary policy on interest rate futures. Central banks’ transparency is in most respects much greater than it was a decade ago, and so central bank communication needs to be included as a potential source of news. We therefore consider four types of news: macroeconomic news, overseas news, monetary policy surprises and central bank communication. The effect of these types of news on daily changes in interest rate futures is estimated using an EGARCH model for a panel of six economies. We find that interest rate expectations respond to both macroeconomic and policy news, although the response to macroeconomic news is larger, especially once we include foreign news. Overall, the results suggest that the impact of the RBA’s communication policy is in line with other major central banks, and significantly influences (and informs) expectations of future monetary policy.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ellis Connolly & Marion Kohler, 2004. "News and Interest Rate Expectations: A Study of Six Central Banks," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.),The Future of Inflation Targeting, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbaacv:acv2004-08
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    File URL: https://www.rba.gov.au/publications/confs/2004/pdf/connolly-kohler.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    central bank communication; transparency; financial markets;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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