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The Power of the Euro–Sterling Rates in Explaining Asset Market Rates: A High‐frequency Analysis

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  • Gianluca Laganà

Abstract

This article makes use of high‐frequency asset market data to explain unexpected changes in interest rates using the methodology proposed by Cochrane and Piazzesi (2002). This work departs from the existing literature because it uses UK market expectations to capture unexpected movements in the base rate, and explores its effect on a large number of asset market variables. Results indicate that the relation between asset market data and unexpected base rate changes is stronger and more consistent than the relation between asset market data and raw base rate changes. Results appear to be robust to extreme value changes.

Suggested Citation

  • Gianluca Laganà, 2008. "The Power of the Euro–Sterling Rates in Explaining Asset Market Rates: A High‐frequency Analysis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 37(2), pages 127-140, July.
    • Handle: RePEc:bla:ecnote:v:37:y:2008:i:2:p:127-140
    DOI: 10.1111/j.1468-0300.2008.00196.x
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    References listed on IDEAS

    as
    1. 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.
    2. Monika Piazzesi, 2002. "The Fed and Interest Rates - A High-Frequency Identification," American Economic Review, American Economic Association, vol. 92(2), pages 90-95, May.
    3. Cook, Timothy & Hahn, Thomas, 1989. "The effect of changes in the federal funds rate target on market interest rates in the 1970s," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 331-351, November.
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