Is the European Central Bank (and the United States Federal Reserve) Predictable?

62 Pages Posted: 9 Apr 2003

Date Written: November 2002

Abstract

The objective of this paper is to examine the predictability of the monetary policy decisions of the Governing Council of the ECB and the transmission of the unexpected component of the monetary policy decisions to the yield curve. We find, using new methodologies, that markets do not fully predict the ECB decisions but the lack of perfect predictability is comparable with the results found for the United States Federal Reserve. We also find that the impact of monetary policy shocks on bond yields declines with the maturity of the bonds, and that this impact is significantly lower when the shock stems from a monetary policy meeting of the ECB. Using implicit rates instead of bond yields, we find evidence that the market views the ECB as credible.

Keywords: Predictability, monetary policy shocks, principal components, transmission of monetary policy

JEL Classification: C22, E52

Suggested Citation

Perez-Quiros, Gabriel and Sicilia, Jorge, Is the European Central Bank (and the United States Federal Reserve) Predictable? (November 2002). Available at SSRN: https://ssrn.com/abstract=358460

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014
Spain

Jorge Sicilia (Contact Author)

European Central Bank (ECB) ( email )

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

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