Monetary policy predictability in the euro area: an international comparison

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We evaluate the ability of market participants to anticipate monetary policy decisions in 14 countries. First, by looking at both the magnitude and volatility of changes in the money market rates we show that the days of policy meetings are special days for financial markets. Second, we find that the predictability of Federal Reserve (FED), Bank of England and European Central Bank (ECB) is fully comparable. Finally, an econometric analysis of the ability of market participants to incorporate in the current short-term interest rates the expected policy changes shows that in the euro area (and in other countries) policy decisions are anticipated well in advance.

Document Type: Research Article


Affiliations: 1: First Securities, Fjordalléen 16, Aker BryggeN-0115 Oslo, Norway 2: Research Department, Βanca D’Italia, Via Nazionale 91, 00184 Roma, Italy

Publication date: August 1, 2011

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