The ECB monetary policy strategy and the money market

Abstract

This paper aims at contributing to the understanding of how the ECB conducts monetary policy as seen from a money market perspective. More specifically it covers two different issues. First, it looks at the 'learning period' for banks since the Eurosystem started implementing the single monetary policy. It shows that during the first three weeks of 1999 the narrow corridor in place during this period was effective in limiting daily volatility of the money market overnight rates. In addition, the behaviour of banks and market rates during this period provides evidence that learning was taking place. Second, it looks at how well money market participants have anticipated the monetary policy decisions taken by the ECB. To do so, the paper analyses whether the announcements of monetary policy decisions to maintain or change interest rates impact on the stochastic behaviour of interest rates. Looking at the EONIA rates within the reserve maintenance periods, we find that the announcement of monetary policy decisions does not change significantly the level or volatility of overnight rates.

Does it Pay to Watch Central Bankers' Lips? The Information Content of Ecb Wording

“…He concludes that the predictability of the ECB is lower than that of the other two banks. On the other hand, Gaspar et al (2001) come to the conclusion, that announcements of monetary policy decisions do not change the stochastic behaviour of the EONIA, which indicates that market participants have anticipated interest rate decisions.…”

Communication, Transparency, Accountability: Monetary Policy in the Twenty-First Century

“…5 Empirical tests show that, with regard to the predictability of its decisions, the ECB's communication policy will easily stand up to any comparison (see, for example, Gaspar, Pérez-Quirós, and Sicilia, 2001;Bernoth and von Hagen, 2004;and Bank for International Settlements, 2004, p. 86;also, Poole and Rasche, 2003, provide evidence regarding the Federal Reserve). 6 The term "minutes," per se, directly implies transparency and authenticity regarding the course of a meeting.…”

Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording

“…For example, Ross (2002) examines the predictability of ECB policy decisions concluding that the predictability of the ECB is lower than that of the Fed or the Bank of England. Gaspar et al (2001), Wilhelmsen and Zaghini (2005) and Ehrmann and Fratzscher (2005) come to more favourable conclusions. For the Fed, Conley et al (2004) show that the bias announcement includes significant information, which may help to predict the Federal Reserve's interest rate decisions.…”