DO EUROPEAN CENTRAL BANK'S STATEMENTS STEER INTEREST RATES IN THE EURO ZONE?*

Marie Musard-Gies

34 citations0/0 files storedManchester School

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies European Monetary and Fiscal Policies

Abstract

In this study, we aim at testing whether press conferences held after the meeting of the European Central Bank's monetary policy council steer market interest rates in the Euro zone. To meet this goal, we quantify the statements according to whether they are neutral, hawkish or dovish. We show, using a principal components analysis, that market interest rates react significantly to the bias in statements, and more particularly to changes in statements from one meeting to the next. Moreover, we find that the short end of the yield curve reacts more sharply to statements than the long segment: the effect of statements peaks on interest rates with a maturity of 6 or 12 months and is smaller for the longer maturities. Using non‐parametric tests confirms our previous results.

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References

2001Monetary policy surprises and interest rates: Evidence from the Fed funds futures market 1991Common Factors Affecting Bond Returns 2004Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements 2002Central Bank Transparency 1989The effect of changes in the federal funds rate target on market interest rates in the 1970s 2004Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment 2003Central Bank Talk: Does It Matter and Why?2002Market Anticipations of Monetary Policy Actions

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