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What can we learn about monetary policy transparency from financial market data?

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  • Courtenay, Roger
  • Clare, Andrew
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    Abstract

    In this paper we investigate the impact of UK macroeconomic news announcements on selected futures contracts and exchange rates. We include a wide set of scheduled public news announcements in our study, including official interest rate decisions. We investigate whether the reaction to these announcements has changed since the Bank of England was granted operational independence in May 1997. Our results indicate that there may well have been changes in the way that financial markets incorporate key economic data into securities prices. In particular, we document an increase in the speed of the reaction to interest rate announcements, but also some evidence of a fall in the size of the full reaction. -- In diesem Papier wird untersucht, wie in Großbritannien makroökonomische Neuigkeiten auf ausgewählte Terminkontrakte und Wechselkurse wirken. In der Studie wird eine breite Palette regelmäßig veröffentlichter Daten betrachtet, einschließlich der Entscheidungen über die Notenbankzinsen. Wir untersuchen, ob die Reaktionen auf diese Ankündigungen sich geändert haben, seit der Bank von England im Mai 1997 operationelle Unabhängigkeit gewährt worden ist. Die Ergebnisse zeigen, dass durchaus Veränderungen zu verzeichnen sind in der Art und Weise, wie auf den Finanzmärkten ökonomische Daten die Wertpapierpreise ändern. Insbesondere dokumentieren wir, dass die Reaktionen auf Zinsänderungen schneller erfolgen aber auch, dass die Stärke der Reaktionen geringer ist.

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    Bibliographic Info

    Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2001,06.

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    Date of creation: 2001
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    Handle: RePEc:zbw:bubdp1:4152

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    1. Ederington, Louis H. & Lee, Jae Ha, 1995. "The Short-Run Dynamics of the Price Adjustment to New Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 117-134, March.
    2. Michael Melvin & Xixi Yin, . "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Working Papers 96/1, Arizona State University, Department of Economics.
    3. Geraats, P.M., 2001. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Papers 41, Quebec a Montreal - Recherche en gestion.
    4. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 31-50.
    5. Jensen, Henrik, 2002. " Optimal Degrees of Transparency in Monetary Policymaking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 399-422, September.
    6. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    7. Jon Danielsson & Richard Payne, 1999. "Real Trading Patterns and Prices in Spot Foreign Exchange Markets," FMG Discussion Papers dp320, Financial Markets Group.
    8. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Volatility Forecasting," PIER Working Paper Archive 05-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    9. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
    10. McQueen, Grant & Roley, V Vance, 1993. "Stock Prices, News, and Business Conditions," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 683-707.
    11. Mitchell, Mark L & Mulherin, J Harold, 1994. " The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, vol. 49(3), pages 923-50, July.
    12. Torben G. Andersen & Tim Bollerslev, 1998. "Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," Journal of Finance, American Finance Association, vol. 53(1), pages 219-265, 02.
    13. Becker, Kent G & Finnerty, Joseph E & Kopecky, Kenneth J, 1995. "Domestic macroeconomic news and foreign interest rates," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 763-783, December.
    14. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
    15. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank, Research Centre.
    16. 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.
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    Cited by:
    1. Helder Ferreira de Mendonça & Délio José Cordeiro Galvão & Renato Falci Villela Loures, 2011. "Financial Regulation and Transparency of Information: first steps on new land," Working Papers Series 248, Central Bank of Brazil, Research Department.
    2. Lyziak, Tomasz & Mackiewicz, Joanna & Stanislawska, Ewa, 2007. "Central bank transparency and credibility: The case of Poland, 1998-2004," European Journal of Political Economy, Elsevier, vol. 23(1), pages 67-87, March.
    3. Tuysuz, Sukriye, 2007. "The asymmetric impact of macroeconomic announcements on U.S. Government bond rate level and volatility," MPRA Paper 5381, University Library of Munich, Germany.
    4. Dai, Meixing, 2008. "Public debt and currency crisis: how central bank opacity can make things bad?," MPRA Paper 13867, University Library of Munich, Germany.
    5. Geraats, P. & Eijffinger, S.C.W. & Cruijsen, C.A.B. van der, 2006. "Does Central Bank Transparency Reduce Interest Rates?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-178750, Tilburg University.
    6. TUYSUZ, Sukriye, 2007. "Central Bank transparency and the U.S. interest rates level and volatility response to U.S. news," MPRA Paper 5217, University Library of Munich, Germany.
    7. Don Bredin & Stuart Hyde & Dirk Nitzsche & Gerard O'Reilly, 2009. "European monetary policy surprises: the aggregate and sectoral stock market response," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 156-171.
    8. Wilhelmsen, Bjørn-Roger & Zaghini, Andrea, 2005. "Monetary policy predictability in the euro area: an international comparison," Working Paper Series 0504, European Central Bank.
    9. Kamel Malik Bensafta & Gervasio Semedo, 2014. "Transmission de la volatilité et Central-Banking," Working Papers halshs-01012058, HAL.
    10. Manna, Michele, 2002. "Using money market rates to assess the alternatives of fixed vs. variable rate tenders: the lesson from 1989-1998 data for Germany," Working Paper Series 0186, European Central Bank.
    11. Tuysuz, Sukriye, 2007. "The effects of a greater central bank credibility on interest rates level and volatility response to news in the U.K," MPRA Paper 5263, University Library of Munich, Germany.

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