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Learning the Rules of the New Game? Comparing the Reactions in Financial Markets to Announcements before and after the Bank of England's Operational Independence

Author

Listed:
  • Ana Lasaosa

    (Financial Stability, Bank of England, United Kingdom)

Abstract

The increase in transparency embedded in the new monetary policy framework established in the UK after 1997 was expected to make the market less sensitive to interest rate decisions and more to macroeconomic releases. This has not turned out to be the case. This article uses high-frequency data to explore three possible explanations for the puzzling results: markets are still learning the new framework, there have been changes in the surprise component of macroeconomic announcements, and markets react more to international announcements after 1997. None of these hypotheses is born out by the data.

Suggested Citation

  • Ana Lasaosa, 2007. "Learning the Rules of the New Game? Comparing the Reactions in Financial Markets to Announcements before and after the Bank of England's Operational Independence," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 10(1), pages 18-41, Summer.
    • Handle: RePEc:ekn:ekonom:v:10:y:2007:i:1:p:18-41
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    Cited by:

    1. Iris Biefang-Frisancho Mariscal & Peter Howells, 2007. "Monetary Policy Transparency in the UK: The Impact of Independence and Inflation Targeting," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(5), pages 603-617.
    2. Lavan Mahadeva, 2007. "A model of market surprises," Bank of England working papers 327, Bank of England.
    3. Orla May & Merxe Tudela, 2005. "When is mortgage indebtedness a financial burden to British households? A dynamic probit approach," Bank of England working papers 277, Bank of England.
    4. Kia, Amir, 2017. "Monetary policy transparency in a forward-looking market: Evidence from the United States," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 597-617.
    5. Amir Kia, 2011. "Developing a Market-Based Monetary Policy Transparency Index: Evidence from the United States," Economic Issues Journal Articles, Economic Issues, vol. 16(2), pages 53-80, September.
    6. Michael Ehrmann & David Sondermann, 2012. "The News Content of Macroeconomic Announcements: What if Central Bank Communication Becomes Stale?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 1-53, September.
    7. Reeves, Rachel & Sawicki, Michael, 2007. "Do financial markets react to Bank of England communication?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 207-227, March.
    8. Stephen Millard, 2022. "Central Bank Communication: Never Excuse, Never Explain," National Institute of Economic and Social Research (NIESR) Policy Papers 33, National Institute of Economic and Social Research.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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