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
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.
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Volume (Year): 10 (2007)
Issue (Month): 1 (Summer)
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