Using intraday data to gauge financial market responses to Fed and ECB monetary policy decisions
AbstractThis paper examines bond and stock market volatility reactions in the euro area and the US following their respective economies’ monetary policy decisions, over a uniform sample period (April 1999 to May 2006). For this purpose, intraday data on the US and euro area bond and stock markets are used. A strong upsurge in intraday volatility at the time of the release of the monetary policy decisions by the two central banks is found, which is more pronounced for the US financial markets following Fed monetary policy decisions. Part of the increase in intraday volatility in the two economies surrounding monetary policy decisions can be explained by both news of the level of monetary policy and revisions in the expected future monetary policy path. The observed strong discrepancy between asset price reactions in the US and in the euro area following monetary policy decisions still remains a puzzle, although some tentative explanations are provided in the paper. JEL Classification: E52, E58, G14
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0726.
Date of creation: Feb 2007
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Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-CBA-2007-03-31 (Central Banking)
- NEP-EEC-2007-03-31 (European Economics)
- NEP-MAC-2007-03-31 (Macroeconomics)
- NEP-MON-2007-03-31 (Monetary Economics)
- NEP-MST-2007-03-31 (Market Microstructure)
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