News and Interest Rate Expectations: A Study of Six Central Banks
AbstractIn this paper we analyse the effect of news relating to the expected path of monetary policy on interest rate futures. Central banks’ transparency is in most respects much greater than it was a decade ago, and so central bank communication needs to be included as a potential source of news. We therefore consider four types of news: macroeconomic news, overseas news, monetary policy surprises and central bank communication. The effect of these types of news on daily changes in interest rate futures is estimated using an EGARCH model for a panel of six economies. We find that interest rate expectations respond to both macroeconomic and policy news, although the response to macroeconomic news is larger, especially once we include foreign news. Overall, the results suggest that the impact of the RBA’s communication policy is in line with other major central banks, and significantly influences (and informs) expectations of future monetary policy.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2004-10.
Date of creation: Nov 2004
Date of revision:
Other versions of this item:
- Ellis Connolly & Marion Kohler, 2004. "News and Interest Rate Expectations: A Study of Six Central Banks," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-12 (All new papers)
- NEP-FIN-2004-12-12 (Finance)
- NEP-FIN-2004-12-15 (Finance)
- NEP-IFN-2004-12-12 (International Finance)
- NEP-MAC-2004-12-12 (Macroeconomics)
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