Using Intraday Data to Gauge Financial Market Responses to Fed and ECB Monetary Policy Decisions

35 Pages Posted: 9 Feb 2007

Date Written: February 2007

Abstract

This paper examines bond and stock market volatility reactions in the euro area and the US following their respective economies' monetary policy decisions, over a uniform sample period (April 1999 to May 2006). For this purpose, intraday data on the US and euro area bond and stock markets are used. A strong upsurge in intraday volatility at the time of the release of the monetary policy decisions by the two central banks is found, which is more pronounced for the US financial markets following Fed monetary policy decisions. Part of the increase in intraday volatility in the two economies surrounding monetary policy decisions can be explained by both news of the level of monetary policy and revisions in the expected future monetary policy path. The observed strong discrepancy between asset price reactions in the US and in the euro area following monetary policy decisions still remains a puzzle, although some tentative explanations are provided in the paper.

Keywords: Monetary policy, intraday data

JEL Classification: E52, E58, G14

Suggested Citation

Andersson, Magnus, Using Intraday Data to Gauge Financial Market Responses to Fed and ECB Monetary Policy Decisions (February 2007). ECB Working Paper No. 726, Available at SSRN: https://ssrn.com/abstract=960972

Magnus Andersson (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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