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The ECB monetary policy strategy and the money market

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Abstract

This paper aims at contributing to the understanding of how the ECB conducts monetary policy as seen from a money market perspective. More specifically it covers two different issues. First, it looks at the learning period for banks since the Eurosystem started implementing the single monetary policy. It shows that during the first three weeks of 1999 the narrow corridor in place during this period was effective in limiting daily volatility of the money market overnight rates. In addition, the behaviour of banks and market rates during this period provides evidence that learning was taking place. Second, it looks at how well money market participants have anticipated the monetary policy decisions taken by the ECB. To do so, the paper analyses whether the announcements of monetary policy decisions to maintain or change interest rates impact on the stochastic behaviour of interest rates. Looking at the EONIA rates within the reserve maintenance periods, we find that the announcement of monetary policy decisions does not change significantly the level or volatility of overnight rates.

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 47.

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Date of creation: 25 Jun 2001
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Handle: RePEc:onb:oenbwp:47

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  1. Marvin Goodfriend & Robert G. King, 1988. "Financial deregulation, monetary policy, and central banking," Working Paper 88-01, Federal Reserve Bank of Richmond.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  3. Lars E.O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," NBER Working Papers 7598, National Bureau of Economic Research, Inc.
  4. Clarida, Richard H, 2001. "The Empirics of Monetary Policy Rules in Open Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 315-23, October.
  5. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December.
  6. Lars E.O. Svensson, 1999. "Monetary Policy Issues for the Eurosystem," NBER Working Papers 7177, National Bureau of Economic Research, Inc.
  7. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  8. Söderlind, Paul & Svensson, Lars E.O., 1997. "New Techniques to Extract Market Expectations from Financial Instruments," Seminar Papers 621, Stockholm University, Institute for International Economic Studies.
  9. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  10. Bennett T. McCallum, 1997. "Issues in the Design of Monetary Policy Rules," NBER Working Papers 6016, National Bureau of Economic Research, Inc.
  11. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28.
  12. Manna, Michele & Pill, Huw & Quiros, Gabriel, 2001. "The Eurosystem's Operational Framework in the Context of the ECB's Monetary Policy Strategy," International Finance, Wiley Blackwell, vol. 4(1), pages 65-99, Spring.
  13. Hartmann, Philipp & Manna, Michele & Manzanares, Andrés, 2001. "The microstructure of the euro money market," Working Paper Series 0080, European Central Bank.
  14. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
  15. Escriva, J.L. & Fagan, F.P., 1996. "Empirical assessment of Monetary Policy Instruments and Procedures (MPIP) in EU Countries," Papers 2, European Monetary Institute.
  16. Joel T. Krueger & Kenneth N. Kuttner, 1995. "The Fed funds futures rate as a predictor of Federal Reserve policy," Working Paper Series, Macroeconomic Issues 95-4, Federal Reserve Bank of Chicago.
  17. Gabriel Pérez Quirós & Hugo Rodríguez, 2000. "The daily market for funds in Europe: Has something changed with the EMU?," Economics Working Papers 474, Department of Economics and Business, Universitat Pompeu Fabra.
  18. Perez-Quiros, Gabriel & Sicilia, Jorge & Gaspar, Vítor, 2001. "The ECB monetary policy strategy and the money market," Working Papers 47, Oesterreichische Nationalbank (Austrian Central Bank).
  19. Aspetsberger, A., 1996. "Open Market Operations in EU Countries," Papers 3, European Monetary Institute.
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