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The Effect of ECB Forward Guidance on Policy Expectations

Author

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  • Paul Hubert

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Fabien Labondance

    (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE], OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of private short-term interest rate expectations. We estimate the static and dynamic impact of forward guidance on private agents' expectations about future short-term interest rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements decrease most of the term structure of private short-term interest rate expectations, this being robust to several specifications. The effect is stronger on longer maturities and persistent.

Suggested Citation

  • Paul Hubert & Fabien Labondance, 2016. "The Effect of ECB Forward Guidance on Policy Expectations," Working Papers hal-01394821, HAL.
    • Handle: RePEc:hal:wpaper:hal-01394821
    Note: View the original document on HAL open archive server: https://hal.science/hal-01394821
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    References listed on IDEAS

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    1. Mansur Abdurakhmanov, 2023. "Modelling the Effect of Bank of Russia Key Rate Forecasts on Market Participants' Expectations," Russian Journal of Money and Finance, Bank of Russia, vol. 82(2), pages 3-20, June.
    2. Meier, Samira & Rodriguez Gonzalez, Miguel & Kunze, Frederik, 2021. "The global financial crisis, the EMU sovereign debt crisis and international financial regulation: lessons from a systematic literature review," International Review of Law and Economics, Elsevier, vol. 65(C).

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    More about this item

    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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