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

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Author Info
Gabriel Pérez Quirós () (Banco de España)
Jorge Sicilia () (European Central Bank)

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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/webbde/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0229e.pdf
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File Function: First version, December 2002
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Publisher Info
Paper provided by Banco de España in its series Banco de España 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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Related research
Keywords: Predictability; monetary policy shocks; principal components; transmission of monetary policy; yield curve;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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.:

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    Other versions:
  5. Selva Demiralp, 2001. "Monetary policy in a changing world: rising role of expectations and the anticipation effect," Finance and Economics Discussion Series 2001-55, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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    Other versions:
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  14. Joel T. Krueger & Kenneth N. Kuttner, 1995. "The Fed funds futures rate as a predictor of Federal Reserve policy," Working Paper Series, Macroeconomic Issues 95-4, Federal Reserve Bank of Chicago.
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  16. Joe Lange & Brian Sack & William Whitesell, 2001. "Anticipations of monetary policy in financial markets," Finance and Economics Discussion Series 2001-24, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  17. Ulrich Bindseil, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 137, European Central Bank. [Downloadable!]
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  20. V. Vance Roley & Gordon H. Sellon, Jr., 1998. "Market reaction to monetary policy nonannouncements," Research Working Paper 98-06, Federal Reserve Bank of Kansas City. [Downloadable!]
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  23. Antulio N. Bomfim & Vincent R. Reinhart, 2000. "Making news: financial market effects of Federal Reserve disclosure practices," Finance and Economics Discussion Series 2000-14, Board of Governors of the Federal Reserve System (U.S.). [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. Monticini & Vaciago, 2004. "Are Europe Interest Rates led by FED's Announcements?," Macroeconomics 0407025, EconWPA. [Downloadable!]
  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. [Downloadable!]
    Other versions:
  3. 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. [Downloadable!]
    Other versions:
  4. Iris Biefang-Frisancho Mariscal & Peter Howells, 2005. "Monetary Policy Transparency and Uncertainty: A Comparison between the Bank of England and the Bundesbank/ECB," Discussion Papers 0508, University of the West of England, Department of Economics. [Downloadable!]
  5. Andrea Monticini & Giacomo Vaciago, 2005. "Are Europe's Interest Rates led by FED Announcements?," Macroeconomics 0507022, EconWPA. [Downloadable!]
  6. C. Moons & A. Van Poeck, 2008. "Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members," Applied Economics, Taylor and Francis Journals, vol. 40(2), pages 193-199. [Downloadable!] (restricted)
  7. Stephan Sauer & Jan-Egbert Sturm, 2003. "Using Taylor Rules to Understand ECB Monetary Policy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Lavan Mahadeva, . "A model of market surprises," Bank of England working papers 327, Bank of England. [Downloadable!]
  9. Michael Ehrmann & Marcel Fratzscher, 2004. "Exchange rates and fundamentals - new evidence from real-time data," Working Paper Series 365, European Central Bank. [Downloadable!]
    Other versions:
  10. 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. [Downloadable!]
  11. Iris Biefang-Frisancho Mariscal & Peter Howells, 2004. "Monetary Policy Transparency:Lessons from Germany and the Eurozone," Discussion Papers 0410, University of the West of England, Department of Economics. [Downloadable!]
  12. Peter Lildholdt & Anne Vila Wetherilt, . "Anticipation of monetary policy in UK financial markets," Bank of England working papers 241, Bank of England. [Downloadable!]
  13. Roman Horváth, 2007. "Estimating Time-Varying Policy Neutral Rate in Real Time," Working Papers IES 2007/01, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007. [Downloadable!]
  14. Bjørn-Roger Wilhelmsen & Andrea Zaghini, 2005. "Monetary policy predictability in the euro area: An international comparison," Working Paper 2005/7, Norges Bank. [Downloadable!]
    Other versions:
  15. Iris Biefang-Frisancho Mariscal & Peter Howells, 2006. "Monetary Policy Uncertainty: Is There a Difference Between Bank of England and the Bundesbank/ECB?," Discussion Papers 0613, University of the West of England, Department of Economics. [Downloadable!]
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