Measuring euro area monetary policy

By Carlo Altavilla, Luca Brugnolini, R. Gürkaynak, Roberto Motto, Giuseppe Ragusa. Journal of Monetary Economics, 2019

362 citations recorded by the source corpus.

We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision announcement and the window that contains the press conference. We also show that the QE-related policy factor has been dominant in the recent period and that Forward Guidance and QE effects have been very persistent on the longer-end of the yield curve. We further show that broad and banking stock indices' responses to monetary policy surprises depended on the perceived nature of the surprises. We find no evidence of asymmetric responses of financial markets to positive and negative surprises, in contrast to the literature on asymmetric real effects of monetary policy. Lastly, we show how to implement our methodology for any policy-related news release, such as policymaker speeches. To carry out the analysis, we construct the Euro Area Monetary Policy Event-Study Database (EA-MPD). This database, which contains intraday asset price changes around the policy decision announcement as well as around the press conference, is a contribution on its own right and we expect it to be the standard in monetary policy research for the euro area.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/dd023192fd89829d538d58482d701a7dd50e3844

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Citations in the corpus

A Tale of Two Decades: The Ecb's Monetary Policy at 20 (2019, methodology): “…surrounding the blue dashed line arises from the green density by shifting up its percentiles as indicated by the forward guidance impact estimated by the regression of percentiles on a forward guidance factor extracted from the term structure of interest rates following Altavilla et al. (2019).”
How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area (2018, methodology): “…changes in the OIS rates with maturity from one month to ten years recorded during the Eurosystem press conferences (available in the Monetary Policy Database of Altavilla et al., 2019) in which the ECB President announces and describes the monetary policy decisions taken by the Governing Council.”