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ECB monetary policy surprises: identification through cojumps in interest rates

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  • Lars winkelmann
  • Markus Bibinger
  • Tobias Linzert
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    Abstract

    This paper proposes a new econometric approach to disentangle two distinct response patterns of the yield curve to monetary policy announcements. Based on cojumps in intraday tick-data of a short and long term interest rate, we develop a day-wise test that detects the occurrence of a significant policy surprise and identifies the market perceived source of the surprise. The new test is applied to 133 policy announcements of the European Central Bank (ECB) in the period from 2001-2012. Our main findings indicate a good predictability of ECB policy decisions and remarkably stable perceptions about the ECB’s policy preferences.

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2013-038.pdf
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    Bibliographic Info

    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2013-038.

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    Length: 28 pages
    Date of creation: Aug 2013
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2013-038

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    Related research

    Keywords: Central bank communication; yield curve; spectral cojump estimator; high frequency tick-data;

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    References

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    1. Mardi Dungey & Lyudmyla Hvozdyk, 2010. "Cojumping: Evidence from the US Treasury Bond and Futures Markets," NCER Working Paper Series, National Centre for Econometric Research 56, National Centre for Econometric Research, revised 20 Jul 2010.
    2. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    3. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, Elsevier, vol. 42(6), pages 1033-1067, June.
    4. Mardi Dungey & Michael McKenzie & Vanessa Smith, 2007. "Empirical Evidence On Jumps In The Term Structure Of The Us Treasury Market," CAMA Working Papers 2007-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
    6. Magnus Andersson & Lars Jul Overby & Szabolcs Sebestyén, 2009. "Which News Moves the Euro Area Bond Market?," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 10, pages 1-31, 02.
    7. Ehrmann, Michael & Fratzscher, Marcel, 2003. "Monetary Policy Announcements and Money Markets: A Transatlantic Perspective," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 6(3), pages 309-28, Winter.
    8. Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely, 2007. "Jumps, cojumps and macro announcements," Working Papers, Federal Reserve Bank of St. Louis 2007-032, Federal Reserve Bank of St. Louis.
    9. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports, Federal Reserve Bank of New York 99, Federal Reserve Bank of New York.
    10. Mancini, Cecilia & Gobbi, Fabio, 2012. "Identifying The Brownian Covariation From The Co-Jumps Given Discrete Observations," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 28(02), pages 249-273, April.
    11. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Explaining monetary policy in press conferences," Working Paper Series, European Central Bank 0767, European Central Bank.
    12. Schmidt, Sandra & Nautz, Dieter, 2010. "Central bank communication and the perception of monetary policy by financial market experts," Discussion Papers 2010/29, Free University Berlin, School of Business & Economics.
    13. Eser, Fabian & Carmona Amaro, Marta & Iacobelli, Stefano & Rubens, Marc, 2012. "The use of the Eurosystem's monetary policy instruments and operational framework since 2009," Occasional Paper Series 135, European Central Bank.
    14. Ehrmann, Michael & Fratzscher, Marcel & Gürkaynak, Refet S. & Swanson, Eric T, 2007. "Convergence and Anchoring of Yield Curves in the Euro Area," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6456, C.E.P.R. Discussion Papers.
    15. Yacine Aït-Sahalia, 2005. "How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(2), pages 351-416.
    16. Hassler, Uwe & Wolters, Jurgen, 1995. "Long Memory in Inflation Rates: International Evidence," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(1), pages 37-45, January.
    17. Brand, Claus & Buncic, Daniel & Turunen, Jarkko, 2006. "The impact of ECB monetary policy decisions and communication on the yield curve," Working Paper Series, European Central Bank 0657, European Central Bank.
    18. Ellingsen, Tore & Söderström, Ulf, 1998. "Monetary Policy and Market Interest Rates," Working Paper Series in Economics and Finance 242, Stockholm School of Economics, revised 08 Mar 1999.
    19. Edda Claus & Mardi Dungey, 2012. "U.S. Monetary Policy Surprises: Identification with Shifts and Rotations in the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 44(7), pages 1443-1453, October.
    20. Meredith J. Beechey & Jonathan H. Wright, 2008. "The high-frequency impact of news on long-term yields and forward rates: Is it real?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2008-39, Board of Governors of the Federal Reserve System (U.S.).
    21. Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 6(4), pages 379-406.
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