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The Use of Financial Market Indicators by Monetary Authorities

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  • Paul Mylonas
  • Sebastian Schich
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    Abstract

    In a new and changing environment for monetary policy, an interesting issue to examine is the use of financial market indicators by monetary policy authorities. With this in mind, the OECD canvassed a number of major central banks to get their views. This paper presents a synthesis of the responses and respects the confidentiality of individual central banks. Its main conclusions are as follows. In principle, financial market variables can provide additional information regarding the shocks that strike the economy, such as their perceived size and source as well as the process of feeding through the economy. A complementary function is to gauge market anticipations and reactions to policy changes, including the credibility of policy objectives. Regarding policy setting, monetary authorities are clearly aware of the dangers of mechanically targeting this information, which could lead to circularities. However, in some cases, they seem to find financial market indicators useful in ... Dans un environnement de politique monétaire nouveau et en pleine évolution, il nous a semblé intéressant d’examiner l’usage que les autorités de la politique monétaire font des indicateurs du marché financier. C’est dans cette optique que l’OCDE a sollicité l’avis d’un certain nombre de grandes banques centrales. Ce document présente une synthèse de l’ensemble de leurs opinions, tout en respectant la confidentialité de chacune d’entre elles, dont les principales conclusions sont les suivantes. En principe, les variables concernant le marché financier peuvent fournir des informations supplémentaires en ce qui concerne les secousses qui frappent l’économie, en ce sens qu’elles en perçoivent l’ampleur, la source aussi bien que les répercussions sur le système économique. Une de leurs fonctions complémentaires est d’évaluer les anticipations du marché et les réactions aux changements de politique, ainsi que la crédibilité des objectifs politiques. Bien que les autorités monétaires ...

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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 223.

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    Date of creation: 15 Sep 1999
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    Handle: RePEc:oec:ecoaaa:223-en

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    Keywords: monetary policy indicators; central bank policies; financial market indicators; indicateurs de la politique monétaire; politiques des banques centrales; indicateurs du marché financier;

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    Cited by:
    1. Guillaume Guerrero & Nicolas Million, 2004. "The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model," Computing in Economics and Finance 2004, Society for Computational Economics 133, Society for Computational Economics.
    2. Cihan Yalcin & Gulbin Sahinbeyoglu, 2000. "The Term Structure of Interest Rates : Does It Tell About Future Inflation," Discussion Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0002, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. Peter Christoffersen & Stefano Mazzotta, 2004. "The Informational Content of Over-the-Counter Currency Options," CIRANO Working Papers, CIRANO 2004s-16, CIRANO.
    4. Sara G. Castellanos & Eduardo Camero, 2003. "La estructura temporal de tasas de interés en México: ¿Puede predecir la actividad económica futura?," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 18(2), pages 33-66, December.
    5. Gerberding, Christina, 2001. "The information content of survey data on expected price developments for monetary policy," Discussion Paper Series 1: Economic Studies 2001,09, Deutsche Bundesbank, Research Centre.
    6. Berlemann, Michael & Elzemann, Jorg, 2006. "Are expectations on inflation and election outcomes connected? An empirical analysis," Economics Letters, Elsevier, Elsevier, vol. 91(3), pages 354-359, June.
    7. Philip Liu, 2004. "Improving implementation of inflation targeting in New Zealand: an investigation of the Reserve Bank's inflation errors," Reserve Bank of New Zealand Discussion Paper Series DP 2004/06, Reserve Bank of New Zealand.
    8. Jelena Zubkova, 2003. "Interest Rate Term Structure in Latvia in the Monetary Policy Context," Working Papers, Latvijas Banka 2003/03, Latvijas Banka.

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