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Is the European Central Bank (and the United States Federal Reserve) predictable?

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  • Gabriel Pérez Quirós

    ()
    (Banco de España)

  • Jorge Sicilia

    ()
    (European Central Bank)

Abstract

The objective of this paper is to examine the predictability of the monetary policy decisions of the Governing Council of the ECB and the transmission of the unexpected component of the monetary policy decisions to the yield curve. We find, using new methodologies, that markets do not fully predict the ECB decisions but the lack of perfect predictability is comparable with the results found for the United States Federal Reserve. We also find that the impact of monetary policy shocks on bond yields declines with the maturity of the bonds, and that this impact is significantly lower when the shock stems from a monetary policy meeting of the ECB. Using implicit rates instead of bond yields, we find evidence that the market views the ECB as credible.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0229e.pdf
File Function: First version, December 2002
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0229.

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Length: 59 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:bde:wpaper:0229

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Keywords: Predictability; monetary policy shocks; principal components; transmission of monetary policy; yield curve;

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References

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Citations

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Cited by:
  1. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
  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. Iris Biefang-Frisancho Mariscal & Peter Howells, 2006. "Monetary Policy Uncertainty: Is There a Difference Between Bank of England and the Bundesbank/ECB?," Working Papers 0613, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  4. Lavan Mahadeva, 2007. "A model of market surprises," Bank of England working papers 327, Bank of England.
  5. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Exchange rates and fundamentals: new evidence from real-time data," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 317-341, March.
  6. Andrea Monticini & Giacomo Vaciago, 2007. "Are Euro Interest Rates led by FED Announcements?," Money Macro and Finance (MMF) Research Group Conference 2006 16, Money Macro and Finance Research Group.
  7. Bjørn-Roger Wilhelmsen & Andrea Zaghini, 2005. "Monetary policy predictability in the euro area: An international comparison," Working Paper 2005/7, Norges Bank.
  8. Iris Biefang-Frisancho Mariscal & Peter Howells, 2005. "Monetary Policy Transparency and Uncertainty: A Comparison between the Bank of England and the Bundesbank/ECB," Working Papers 0508, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  9. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
  10. David Navratil & Viktor Kotlan, 2005. "The CNB's Policy Decisions - Are They Priced in by the Markets?," Research and Policy Notes 2005/01, Czech National Bank, Research Department.
  11. Monticini & Vaciago, 2004. "Are Europe Interest Rates led by FED's Announcements?," Macroeconomics 0407025, EconWPA.
  12. Stephan Sauer & Jan-Egbert Sturm, 2007. "Using Taylor Rules to Understand European Central Bank Monetary Policy," German Economic Review, Verein für Socialpolitik, vol. 8, pages 375-398, 08.
  13. Peter Lildholdt & Anne Vila Wetherilt, 2004. "Anticipation of monetary policy in UK financial markets," Bank of England working papers 241, Bank of England.
  14. Iris Biefang-Frisancho Mariscal & Peter Howells, 2004. "Monetary Policy Transparency:Lessons from Germany and the Eurozone," Working Papers 0410, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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