The ECB Monetary Policy Strategy and the Money Market

38 Pages Posted: 24 Feb 2003

See all articles by Vitor Gaspar

Vitor Gaspar

European Commission

Gabriel Perez-Quiros

Banco de España

Jorge Sicilia

European Central Bank (ECB)

Date Written: July 2001

Abstract

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.

Keywords: money market; martingale behaviour; operational framework; predictability

JEL Classification: E52, C22

Suggested Citation

Gaspar, Vitor and Perez-Quiros, Gabriel and Sicilia, Jorge, The ECB Monetary Policy Strategy and the Money Market (July 2001). Available at SSRN: https://ssrn.com/abstract=356201

Vitor Gaspar (Contact Author)

European Commission ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7200 (Phone)
+49 69 1344 6575 (Fax)

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014
Spain

Jorge Sicilia

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
286
Abstract Views
2,792
rank
118,215
PlumX Metrics