Measuring Euro Area Monetary Policy

56 Pages Posted: 10 Jul 2019 Last revised: 23 Jul 2019

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Luca Brugnolini

affiliation not provided to SSRN

Refet S. Gürkaynak

Bilkent University - Department of Economics

Roberto Motto

European Central Bank (ECB)

Giuseppe Ragusa

University of Pisa - Department of Economics and Management

Multiple version iconThere are 4 versions of this paper

Date Written: 2019

Abstract

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.

Keywords: ECB policy surprise, event-study, intraday, persistence, asymmetry

JEL Classification: E430, E440, E520, E580, G120, G140

Suggested Citation

Altavilla, Carlo and Brugnolini, Luca and Gürkaynak, Refet S. and Motto, Roberto and Ragusa, Giuseppe, Measuring Euro Area Monetary Policy (2019). CESifo Working Paper No. 7699. Available at SSRN: https://ssrn.com/abstract=3416872

Carlo Altavilla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Luca Brugnolini

affiliation not provided to SSRN

Refet S. Gürkaynak

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey

Roberto Motto

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany

Giuseppe Ragusa

University of Pisa - Department of Economics and Management ( email )

Italy

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