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Monetary policy predictability in the euro area: an international comparison

  • Bj�rn-Roger Wilhelmsen
  • Andrea Zaghini

We evaluate the ability of market participants to anticipate monetary policy decisions in 14 countries. First, by looking at both the magnitude and volatility of changes in the money market rates we show that the days of policy meetings are special days for financial markets. Second, we find that the predictability of Federal Reserve (FED), Bank of England and European Central Bank (ECB) is fully comparable. Finally, an econometric analysis of the ability of market participants to incorporate in the current short-term interest rates the expected policy changes shows that in the euro area (and in other countries) policy decisions are anticipated well in advance.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 20 ()
Pages: 2533-2544

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Handle: RePEc:taf:applec:v:43:y:2011:i:20:p:2533-2544
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  1. Hartmann, Philipp & Manna, Michele & Manzanares, Andrés, 2001. "The microstructure of the euro money market," Working Paper Series 0080, European Central Bank.
  2. Sarno, Lucio & Daniel l Thornton & Giorgio Valente, 2003. "Federal Funds Rate Prediction," Royal Economic Society Annual Conference 2003 183, Royal Economic Society.
  3. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December.
  4. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January.
  5. Gaspar, Vitor & Perez-Quiros, Gabriel & Sicilia, Jorge, 2001. "The ECB Monetary Policy Strategy and the Money Market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 325-42, October.
  6. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Wiley Blackwell, vol. 7(1), pages 1-24, 03.
  7. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2002. "Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 137-59, February.
  8. Andrew G Haldane & Vicky Read, 2000. "Monetary policy surprises and the yield curve," Bank of England working papers 106, Bank of England.
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  10. Gabriel Pérez Quirós & Jorge Sicilia, 2002. "Is the European Central Bank (and the United States Federal Reserve) predictable?," Banco de Espa�a Working Papers 0229, Banco de Espa�a.
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  12. Ehrmann, Michael & Fratzscher, Marcel, 2003. "Monetary Policy Announcements and Money Markets: A Transatlantic Perspective," International Finance, Wiley Blackwell, vol. 6(3), pages 309-28, Winter.
  13. Selva Demiralp & Dennis Farley, 2003. "Declining required reserves, funds rate volatility, and open market operations," Finance and Economics Discussion Series 2003-27, Board of Governors of the Federal Reserve System (U.S.).
  14. Eijffinger, S.C.W. & Geraats, P.M., 2004. "How Transparent Are Central Banks?," Cambridge Working Papers in Economics 0411, Faculty of Economics, University of Cambridge.
  15. Courtenay, Roger & Clare, Andrew, 2001. "What can we learn about monetary policy transparency from financial market data?," Discussion Paper Series 1: Economic Studies 2001,06, Deutsche Bundesbank, Research Centre.
  16. Sager, Michael J. & Taylor, Mark P., 2004. "The impact of European Central Bank Governing Council announcements on the foreign exchange market: a microstructural analysis," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1043-1051.
  17. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Working Papers 2002-028, Federal Reserve Bank of St. Louis.
  18. 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.
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  20. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
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