The ECB Monetary Policy Strategy and the Money Market

By Vítor Gaspar, Gabriel Pérez-Quirós, Jorge Sicilia. Social Science Research Network, 2001

137 citations recorded by the source corpus.

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. JEL Classification: E52, C22

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/62eee89d0235e4977448018302d7ccf981efccbd

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Citations in the corpus

Look Who's Talking: ECB Communication During the First Years of Emu (2004, methodology): “According to a survey by Goldman Sachs held in February 2000 in which a sample of financial market participants was asked to rate on a scale of 1 to 5 (a higher grade indicating a better understanding) how well they understood the reasoning behind monetary policy decisions of four central banks, the”
Equal Size, Equal Role? Interest Rate Interdependence between the Euro Area and the United States (2004, unknown): “Gaspar et al. (2001) provide evidence for learning effects in the money market: looking at overnight rates, they find that the markets have adjusted to the changed operational framework within a couple of days after January 1, 1999.”
Interest Rate Pass-Through: Empirical Results for the Euro Area (2005, methodology): “Gaspar et al. (2001) show, using daily EONIA rates, that markets are able to predict the ECB’s interest rate decisions quite accurately within a reserve maintenance period.”
Communication, transparency, accountability: monetary policy in the twenty-first century (2005, background): “…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,…”
The Microstructure of the Euro Money Market (2001, unknown): “It is also in line with the recent results by Gaspar et al. (2001), who do not find evidence of important 929P. Hartmann et al. / Journal of International Money and Finance 20 (2001) 895–948 market misperceptions or large and significant volatility increases on Council days for daily data.”