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

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  • Pérez Quirós, Gabriel
  • Sicilia, Jorge

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. JEL Classification: C22, E52

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Paper provided by European Central Bank in its series Working Paper Series with number 0192.

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Date of creation: Nov 2002
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Handle: RePEc:ecb:ecbwps:20020192

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Citations

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Cited by:
  1. Lavan Mahadeva, 2007. "A model of market surprises," Bank of England working papers 327, Bank of England.
  2. Eijffinger, S.C.W. & Geraats, P., 2002. "How Transparent are Central Banks?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-88701, Tilburg University.
  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.
  4. Andrea Monticini & Giacomo Vaciago, 2005. "Are Europe's Interest Rates led by FED Announcements?," Macroeconomics, EconWPA 0507022, EconWPA.
  5. 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.
  6. 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.
  7. 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.
  8. Stephan Sauer & Jan-Egbert Sturm, 2007. "Using Taylor Rules to Understand European Central Bank Monetary Policy," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 8, pages 375-398, 08.
  9. Bj�rn-Roger Wilhelmsen & Andrea Zaghini, 2011. "Monetary policy predictability in the euro area: an international comparison," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(20), pages 2533-2544.
  10. Claus Brand & Daniel Buncic & Jarkko Turunen, 2010. "The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(6), pages 1266-1298, December.
  11. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Exchange rates and fundamentals: new evidence from real-time data," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(2), pages 317-341, March.
  12. Peter Lildholdt & Anne Vila Wetherilt, 2004. "Anticipation of monetary policy in UK financial markets," Bank of England working papers 241, Bank of England.
  13. 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.
  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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