Monetary Transmission with Frequent Policy Events

We examine how policymakers’ speeches and monetary policy announcements at official policy meetings transmit to financial markets and the real economy in the euro area. Using high-frequency intraday data across a broad cross-section of financial assets, we introduce the Euro Area Extended Monetary Policy Event-Study Database (EA-EMPD). We refine the identification of monetary policy surprises by exploiting granular, quote-level data on individual market participants’ bid and ask quotes. This novel dataset expands the set of identifiable policy events by an order of magnitude relative to databases restricted to rate-setting meetings. Our analysis yields three main findings. First, central bank speeches move asset prices across all maturities by magnitudes comparable to those of official policy announcements. Second, the relative importance of surprises associated with policy decisions and speeches differs markedly between euro area and U.S. financial markets. Third, speech-induced short-rate shocks transmit to the real economy similarly to official policy shocks, and combining the two sources of policy shocks materially improves the precision of inference. Importantly, even under this much broader definition and measurement of monetary policy impulses, monetary policy shocks account for only a negligible share of fluctuations in real economic activity.