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Are Euro Interest Rates led by FED Announcements?

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  • Andrea Monticini

    (University of Exeter)

  • Giacomo Vaciago

    (Universita' Cattolica Milano)

Abstract

This paper investigates, for the first time, the reactions of markets to the monetary policy decisions of their own Central Bank and to the decisions of the Central Banks of other countries. In particular, using daily interest rates to estimate the impact of the monetary policy announcements of a Central Bank, we analyse the effect of the FED, ECB, and BoE monetary policy announcements on their own markets, and on the others. Surprisingly, we find that while the US rates respond only to FED announcements, and the British rates respond mainly to BoE announcements and marginally to FED announcements, the response of Euro bond rates to the FED announcements is stronger than their response to ECB announcements

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File URL: http://repec.org/mmf2006/up.5362.1141752238.pdf
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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 16.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:16

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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Keywords: Monetary Policy; Term structure of interest rates; Interdependence;

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References

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  1. Glenn D. Rudebusch, 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Working Papers in Applied Economic Theory 95-02, Federal Reserve Bank of San Francisco.
  2. William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers 2000-010, Federal Reserve Bank of St. Louis.
  3. Jon Faust & Eric Swanson & and Jonathan H. Wright, 2002. "Identifying vars based on high frequency futures data," International Finance Discussion Papers 720, Board of Governors of the Federal Reserve System (U.S.).
  4. Sergey V. Chernenko, 2004. "The information content of forward and futures prices: market expectations and the price of risk," International Finance Discussion Papers 808, Board of Governors of the Federal Reserve System (U.S.).
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  8. Ehrmann, Michael & Fratzscher, Marcel, 2002. "Interdependence between the euro area and the US: what role for EMU?," Working Paper Series 0200, European Central Bank.
  9. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2002. "Market-based measures of monetary policy expectations," Finance and Economics Discussion Series 2002-40, Board of Governors of the Federal Reserve System (U.S.).
  10. Daniel L. Thornton, 1998. "Tests of the market's reaction to federal funds rate target changes," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 25-36.
  11. 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.
  12. Fritz Breuss, 2002. "Was ECB's Monetary Policy Optimal?," WIFO Working Papers 173, WIFO.
  13. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94.
  14. Toni Gravelle & Richhild Moessner, 2001. "Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency," Working Papers 01-5, Bank of Canada.
  15. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Wiley Blackwell, vol. 7(1), pages 1-24, 03.
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Cited by:
  1. Harm Bandholz & Jorg Clostermann & Franz Seitz, 2009. "Explaining the US bond yield conundrum," Applied Financial Economics, Taylor & Francis Journals, vol. 19(7), pages 539-550.

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