Advanced Search
MyIDEAS: Login

The ECB and the bond market

Contents:

Author Info

  • Carlo Favero
  • Francesco Giavazzi

Abstract

Despite the fact that the correlation between policy rates in the U.S. and in the euro area has been low—at least over the past three decades—long term interest rates in the two regions have been highly correlated. More recently (since the early 1990s) their levels have also converged. Decomposing long-rates in their underlying factors-real rates (plus an inflation risk premium), term premia, expected monetary policy and expected inflation—we find that this convergence reflects more similar economic structures in the U.S. and in the euro area, rather than a change in the distribution of shocks that hit the two regions. As far as the response to shocks is concerned, since the start of EMU Euro area long rates have become more responsive to local non-monetary shocks: in the long run, however, they converge to the same level of U.S. long rates because expected inflation and expected monetary policy also converge to similar levels. Policy rates in the euro area have also become more responsive to local non-monetary shocks. Finally, since the start of EMU, a monetary tightening by the ECB raises long rates, contrary to what used to happen in the 1990s when the Bundesbank was running monetary policy. Interestingly long rates in the Euro area fall following a monetary tightening in the U.S.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ec.europa.eu/economy_finance/publications/publication12341_en.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 314.

as in new window
Length: 27 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:euf:ecopap:0314

Contact details of provider:
Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
Fax: +32 2 298.08.23
Email:
Web page: http://ec.europa.eu/economy_finance/index_en.htm
More information through EDIRC

Related research

Keywords: Favero; Giavazzi; 978-92-79-08239-9; US and German Term Structure; Term Premia; Inflation Expectations; Monetary Policy;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0314. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.