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Measuring Euro Area Monetary Policy

Author

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  • Altavilla, Carlo
  • Brugnolini, Luca
  • Gürkaynak, Refet S.
  • Motto, Roberto
  • Ragusa, Giuseppe

Abstract

We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision announcement and the window that contains the press conference. We also show that the QE-related policy factor has been dominant in the recent period and that Forward Guidance and QE effects have been very persistent on the longer-end of the yield curve. We further show that broad and banking stock indices' responses to monetary policy surprises depended on the perceived nature of the surprises. We find no evidence of asymmetric responses of financial markets to positive and negative surprises, in contrast to the literature on asymmetric real effects of monetary policy. Lastly, we show how to implement our methodology for any policy-related news release, such as policymaker speeches. To carry out the analysis, we construct the Euro Area Monetary Policy Event-Study Database (EA-MPD). This database, which contains intraday asset price changes around the policy decision announcement as well as around the press conference, is a contribution on its own right and we expect it to be the standard in monetary policy research for the euro area.

Suggested Citation

  • Altavilla, Carlo & Brugnolini, Luca & Gürkaynak, Refet S. & Motto, Roberto & Ragusa, Giuseppe, 2019. "Measuring Euro Area Monetary Policy," CEPR Discussion Papers 13759, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13759
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kerssenfischer, Mark, 2019. "Information effects of euro area monetary policy: New evidence from high-frequency futures data," Discussion Papers 07/2019, Deutsche Bundesbank.
    2. Jung, Alexander & Uhlig, Harald, 2019. "Monetary policy shocks and the health of banks," Working Paper Series 2303, European Central Bank.
    3. Faia, Ester & Karau, Soeren, 2019. "Banks' Systemic Risk and Monetary Policy," CEPR Discussion Papers 13456, C.E.P.R. Discussion Papers.
    4. Miranda-Agrippino, Silvia & Ricco, Giovanni, 2019. "Identification with External Instruments in Structural VARs under Partial Invertibility," The Warwick Economics Research Paper Series (TWERPS) 1213, University of Warwick, Department of Economics.

    More about this item

    Keywords

    Asymmetry; ECB policy surprise; Event-Study; intraday; Persistence;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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