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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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Paper provided by Banco de Espa�a in its series Banco de Espa�a 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
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  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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  23. McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530 Elsevier.
  24. 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.
  25. 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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  28. Bindseil, Ulrich, 2002. "Equilibrium bidding in the Eurosystem's open market operations," Working Paper Series 0137, European Central Bank.
  29. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94.
  30. 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.
  31. Antulio N. Bomfim & Vincent Reinhart, 2000. "Making news: financial market effects of Federal Reserve disclosure practices," Finance and Economics Discussion Series 2000-14, Board of Governors of the Federal Reserve System (U.S.).
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