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Predictability of Monetary Policy Surprises and Euro Area Macroeconomic DynamicsÂ

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  • David Worms

Abstract

I document that high-frequency euro area monetary policy surprises – measured as changes in risk-free rates around the Eurosystem‘s policy announcements – are not exogenous to information regarding macroeconomic news and financial market developments that pre-date the announcements. More specifically, around 20% of the variation of surprises can be explained by pre-dated information. I show that the violation of the exogeneity of conventional surprise measures introduces a considerable bias into estimates on the effects of monetary policy on euro area macroeconomic outcomes.

Suggested Citation

  • David Worms, 2025. "Predictability of Monetary Policy Surprises and Euro Area Macroeconomic DynamicsÂ," Working Papers 850, DNB.
    • Handle: RePEc:dnb:dnbwpp:850
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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

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