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Eurosystem communication and financial market expectations

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  • Patrick Luennemann
  • Dirk Mevis

Abstract

This paper studies the impact of Eurosystem Governing Council communication on financial markets? interest rate expectations based on evidence from bond markets, futures markets and options markets. First, we find that the level, the dispersion and the asymmetry of interest rate expectations are affected on Council meeting days. However, such effects may be relatively short-lived. Moreover, we find that interest rate expectations tend to become less volatile during the black out period. Second, monetary policy meetings tend to affect interest rate expectations much more strongly than data releases. Third, whereas the impact of monetary policy decisions seems to be particularly concentrated and strong around horizons of 2 years, the effect of euro area data releases on rate expectations seem to unfold in a more evenly distributed manner at longer horizons as well. Fourth, keywords may foster the (very) short-run predictability of the Eurosystem monetary policy. However, keywords do not seem to have a systematic impact on interest rate expectations over longer horizons.

Suggested Citation

  • Patrick Luennemann & Dirk Mevis, 2008. "Eurosystem communication and financial market expectations," BCL working papers 30, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp030
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    File URL: https://www.bcl.lu/fr/Recherche/publications/cahiers_etudes/30/BCLWP030.pdf
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    References listed on IDEAS

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