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Monetary policy predictability in the euro area: An international comparison

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Author Info
Bjørn-Roger Wilhelmsen () (Norges Bank)
Andrea Zaghini (Banca d’Italia)

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Abstract

The paper evaluates the ability of market participants to anticipate monetary policy decisions in the euro area and in 13 other countries. First, by looking at the magnitude and the volatility of the 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 the ECB’s monetary policy is fully comparable (and sometimes slightly better) to that of the FED and the Bank of England. Finally, an econometric analysis of the ability of market participants to incorporate in the current money rates the expected changes in the key policy rate shows that in the euro area policy decisions are anticipated well in advance.

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Paper provided by Norges Bank in its series Working Paper with number 2005/7.

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Length: 28 pages
Date of creation: 02 Sep 2005
Date of revision:
Handle: RePEc:bno:worpap:2005_07

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Related research
Keywords: Monetary policy; Predictability; Money market rates;

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Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 - Financial Economics - - General Financial Markets

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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.:
  1. Jonathan Coppel & Ellis Connolly, 2003. "What Do Financial Market Data Tell Us About Monetary Policy Transparency?," RBA Research Discussion Papers rdp2003-05, Reserve Bank of Australia. [Downloadable!]
  2. Courtenay, Roger & Clare, Andrew, 2001. "What can we learn about monetary policy transparency from financial market data?," Discussion Paper Series 1: Economic Studies 2001,06, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Demiralp, Selva & Jorda, Oscar, 2004. "The Response of Term Rates to Fed Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 387-405, June.
  4. Sager, Michael J. & Taylor, Mark P., 2004. "The impact of European Central Bank Governing Council announcements on the foreign exchange market: a microstructural analysis," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1043-1051. [Downloadable!] (restricted)
  5. Hartmann, Philipp & Manna, Michele & Manzanares, Andres, 2001. "The microstructure of the euro money market," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 895-948, November. [Downloadable!] (restricted)
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  6. Vitor Gaspar & Jorge Sicilia & Gabriel Perez-Quiros, 2001. "The ECB monetary policy strategy and the money market," Working Paper Series 069, European Central Bank. [Downloadable!]
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  7. Ehrmann, Michael & Fratzscher, Marcel, 2003. "Monetary Policy Announcements and Money Markets: A Transatlantic Perspective," International Finance, Blackwell Publishing, vol. 6(3), pages 309-28, Winter. [Downloadable!] (restricted)
  8. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January. [Downloadable!] (restricted)
  9. Lucio Sarno & Daniel L. Thornton & Giorgio Valente, 2004. "Federal funds rate prediction," Working Papers 2002-005, Federal Reserve Bank of St. Louis. [Downloadable!]
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  10. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December. [Downloadable!] (restricted)
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  11. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Blackwell Publishing, vol. 7(1), pages 1-24, 03. [Downloadable!] (restricted)
  12. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. 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, vol. 34(1), pages 137-59, February.
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  14. John H. Cochrane & Monika Piazzesi, 2002. "The Fed and Interest Rates: A High-Frequency Identification," NBER Working Papers 8839, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Manchester School, University of Manchester, vol. 71(5), pages 478-497, 09. [Downloadable!] (restricted)
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  16. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June. [Downloadable!] (restricted)
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  17. Jorge Sicilia & Gabriel Perez-Quiros, 2002. "Is the European Central Bank (and the United States Federal Reserve) predictable?," Working Paper Series 192, European Central Bank. [Downloadable!]
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  18. Demiralp, Selva & Farley, Dennis, 2005. "Declining required reserves, funds rate volatility, and open market operations," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1131-1152, May. [Downloadable!] (restricted)
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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. 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. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. Giuseppe Ferrero & Alessandro Secchi, 2009. "The Announcement of Monetary Policy Intentions," Temi di discussione (Economic working papers) 720, Bank of Italy, Economic Research Department. [Downloadable!]
  4. Geraats, Petra M. & Eijffinger, Sylvester C.W. & Cruijsen, Carin A.B. van der, 2006. "Does central bank transparancy reduce interes rates?," Discussion Paper 11, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  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) 710, Bank of Italy, Economic Research Department. [Downloadable!]
  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. [Downloadable!] (restricted)
  7. Silvio Colarossi & Andrea Zaghini, 2007. "Gradualism, Transparency and Improved Operational Framework: A Look at the Overnight Volatility Transmission," CFS Working Paper Series 2007/16, Center for Financial Studies. [Downloadable!]
  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. [Downloadable!]
  9. 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:
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