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Is the European Central Bank (and the United States Federal Reserve) predictable?

  • Gabriel Pérez Quirós

    ()

    (Banco de España)

  • Jorge Sicilia

    ()

    (European Central Bank)

The objective of this paper is to examine the predictability of the monetary policy decisions of the Governing Council of the ECB and the transmission of the unexpected component of the monetary policy decisions to the yield curve. We find, using new methodologies, that markets do not fully predict the ECB decisions but the lack of perfect predictability is comparable with the results found for the United States Federal Reserve. We also find that the impact of monetary policy shocks on bond yields declines with the maturity of the bonds, and that this impact is significantly lower when the shock stems from a monetary policy meeting of the ECB. Using implicit rates instead of bond yields, we find evidence that the market views the ECB as credible.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0229e.pdf
File Function: First version, December 2002
Download Restriction: no

Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0229.

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Length: 59 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:bde:wpaper:0229
Contact details of provider: Web page: http://www.bde.es/

Web page: http://www.bde.es/bde/en/secciones/informes/Publicaciones_se/docs/
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  1. Faust, Jon & Swanson, Eric T. & Wright, Jonathan H., 2004. "Identifying VARS based on high frequency futures data," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1107-1131, September.
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  3. Campbell, John, 1995. "Some Lessons from the Yield Curve," Scholarly Articles 3163264, Harvard University Department of Economics.
  4. 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.
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  18. Marvin Goodfriend, 1985. "Monetary mystique : secrecy and central banking," Working Paper 85-07, Federal Reserve Bank of Richmond.
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  21. 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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  24. Pilegaard, Rasmus & Durré, Alain & Evjen, Snorre, 2003. "Estimating risk premia in money market rates," Working Paper Series 0221, European Central Bank.
  25. John C. Robertson & Daniel L. Thornton, 1997. "Using federal funds futures rates to predict Federal Reserve actions," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 45-53.
  26. Favero, Carlo A. & Iacone, Fabrizio & Pifferi, Marco, 1996. "Monetary Policy, Forward Rates and Long Rates: Does Germany Differ from the United States?," CEPR Discussion Papers 1456, C.E.P.R. Discussion Papers.
  27. Joe Lange & Brian P. Sack & William C. Whitesell, 2001. "Anticipations of monetary policy in financial markets," Finance and Economics Discussion Series 2001-24, Board of Governors of the Federal Reserve System (U.S.).
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  29. Demiralp, Selva & Jorda, Oscar, 2004. "The Response of Term Rates to Fed Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 387-405, June.
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  31. Schich, Sebastian T., 1996. "Alternative specifications of the German term structure and its information content regarding inflation," Discussion Paper Series 1: Economic Studies 1996,08e, Deutsche Bundesbank, Research Centre.
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