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Eurosystem communication and financial market expectations

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  • Patrick Luennemann

    ()

  • Dirk Mevis

    ()

Abstract

This paper studies the impact of Eurosystem Governing Council communication on financial markets? interest rate expectations based on evidence from bond markets, futures markets and options markets. First, we find that the level, the dispersion and the asymmetry of interest rate expectations are affected on Council meeting days. However, such effects may be relatively short-lived. Moreover, we find that interest rate expectations tend to become less volatile during the black out period. Second, monetary policy meetings tend to affect interest rate expectations much more strongly than data releases. Third, whereas the impact of monetary policy decisions seems to be particularly concentrated and strong around horizons of 2 years, the effect of euro area data releases on rate expectations seem to unfold in a more evenly distributed manner at longer horizons as well. Fourth, keywords may foster the (very) short-run predictability of the Eurosystem monetary policy. However, keywords do not seem to have a systematic impact on interest rate expectations over longer horizons.

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File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/30/BCLWP030.pdf
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Bibliographic Info

Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 30.

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Length: 36 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:bcl:bclwop:bclwp030

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Web page: http://www.bcl.lu/

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  1. Svensson, L.E.O., 1994. "Estimating and Interpreting Foreward Interest Rates: Sweden 1992-1994," Papers 579, Stockholm - International Economic Studies.
  2. 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.
  3. Jackwerth, Jens Carsten, 1999. "Option Implied Risk-Neutral Distributions and Implied Binomial Trees: A Literature Review," MPRA Paper 11634, University Library of Munich, Germany.
  4. Lars E. O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates," IMF Working Papers 94/114, International Monetary Fund.
  5. Gurkaynak, Refet S. & Sack, Brian & Wright, Jonathan H., 2007. "The U.S. Treasury yield curve: 1961 to the present," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2291-2304, November.
  6. Ehrmann, Michael & Fratzscher, Marcel, 2005. "How should central banks communicate?," Working Paper Series 0557, European Central Bank.
  7. Bolder, David & Streliski, David, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
  8. Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
  9. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
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