The ECB monetary policy strategy and the money market (original) (raw)
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A case for money in the ECB monetary policy strategy
2005
One major outcome of the review of the ECBs two pillar monetary policy strategy, which was published on 8 May 2003, has been the de facto downgrading of the hitherto prominent role assigned to the stock of money. According to the authors judgement, however, there is a strong theoretical and empirical rationale for the ECB monetary policy to pay close
The monetary policy decisions of the ECB and the money market
BIS Papers chapters, 2002
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The ECB monetary policy: Choices and challenges
Journal of Policy Modeling, 2007
This paper analyses the European central bank (ECB) monetary policy over the period 1999-2006, with a special emphasis on the recent years. The first part of the paper underlines the declared goals, decision variables and procedures, as can be inferred from various speeches of Jean-Claude Trichet, the President of the ECB. These statements are then weighted against the data, mainly through estimates of possible ECB interest rate rules. While in many respects the bank has performed reasonably well, several issues may be raised, mainly because the inflation objective has not been reached during the last period and monetary developments are not in line with economic stability. Policy recommendations follow, built on a renewed monetarist tradition: the reduction of the weight of real activity in the conduct of monetary policy, while further emphasising money via a money growth intermediate target.
Strategic and implementation issues regarding ECB Monetary Policy
International Journal of Sciences: Basic and Applied Research, 2020
This paper identifies the impact of the most important ECB’s non-standard monetary policy measures in the euro area. The global recession has been reflected in the slowdown of the U.S. economy and the largest economies of Europe and Asia. The 2008 and 2014 financial crisis hit the European financial system, whereas during 2010 and early 2011 Eurozone faced the hardest time in the so-called debt crisis coupled with a drop in market confidence. Financial markets faced some problems of solvency of countries with higher debt and fiscal deficits, such as the sovereign debt crisis bubbles in Spain and Italy. The European Central Bank reacted by imposing strategic and technical measures to fuel the banks' liquidity needs, to fight a risky credit crisis and to restore investor’s confidence within a heterogeneous Eurozone countries environment. The ECB implemented the unconventional measures, which aimed at lowering and flattening the yield curve by reducing the interest rate level and s...
SSRN Electronic Journal, 2013
We first sketch how central banks have used unconventional monetary policy measures by using three indicators based on the composition of the balance sheet of eleven central banks. Our analysis suggests that although the ECB's balance sheet has increased dramatically during the crisis, the non-standard monetary policy measures had only a moderate impact on the composition of the ECB's balance sheet compared to other central banks, such as the Fed and the Bank of England. Next, we take stock of research analysing the effects of unconventional monetary policy of the ECB after the onset of the crisis. A crucial question is to what extent these measures have been able to affect interest rates, thereby restoring the monetary policy transmission process and supporting the central bank objectives. Finally, we offer new evidence on the effectiveness of the ECB's unconventional monetary policy measures, i.e. extended liquidity provision (LTRO) and the Securities Market Programme (SMP). Our results suggest that the LTRO interventions in general had a favorable (shortterm) effect on government bond yields. Changes in the SMP only had a visible downward effect on bond yields in Summer 2011, when the program was reactivated for Italy and Spain, but this effect dissipated within a few weeks.
The Effectiveness of the ECB Announcement Channel
Applied Mathematics, 2014
Empirical study on the factors that induce jumps in interest rates in the euro area is still missing. In this paper, maximum likelihood estimates of I-distribution parameters are extracted using as a first step, an original linear model. According to the contribution of ([1] [2]) in the case of developing a class of Poisson-Gaussian model, we try to enhance the predictive power of this model by distinguishing between a pure Gaussian and Poisson-Gaussian distributions. Such an empirical tool permits to optimizing results through a comparative analysis dealing with the fluctuation of the Euro-interbank offered rate and its statistical descriptive behaviour. The analytical and empirical methods try to evaluate the behavioural success of the ECB intervention in setting interest rates for different maturities. Jumps in euribor interest rate can mainly be linked to surprise decisions of the European Central Bank, and the too frequent meetings of the ECB before November 2001. Despite this special event that leads to a certain lack of predictability, other few day-of-week effects are modelled to prove eventual evidence of bond market overreaction. Empirical results prove that Mondays and Wednesdays are the preponderant days. Regarding monetary policy, negative surprises induce larger jumps than positive ones.
What Drives Money Market Rates?
SSRN Electronic Journal, 2005
This paper addresses the question of which fundamentals are the determining factors underlying the price discovery process of money market rates in the euro area (EURIBOR futures). I shed light on how the monetary policy decisions and the external communication of the recently created European Central Bank are actually conveyed to the European money market. The impacts of macroeconomic surprises both in the euro area and in the US are also analysed. I find that both the ECB's monetary policy surprises and macroeconomic releases significantly affect both the level and the volatility of futures returns, and that the adjustment in the conditional variance is more gradual than in the conditional mean. Jumps in the level point to a clear connection between money market rates and fundamentals. The slower adjustment in volatility can be rationalised by the fact that some uncertainty remains in the market after the arrival of new information, and, consequently, traders need some time to find a new consensus. Interestingly, macroeconomic releases in the US have a greater impact than European ones. I also show that the external communication of the ECB mainly impacts on the price variability rather than the level of returns, and that the tone of the ECB's statements is of great importance. This provides clear evidence for the supposition that "central bank talk does matter ". I also extend the analysis to money market rates across the maturity spectrum, and the model employed provides an accurate specification both for the level and the volatility pattern. I show that realised volatility outperforms the GARCH model based measure of the daily price volatility. Finally, a detailed description of the EURIBOR futures market is given, complemented by a statistical analysis of the data. * This paper is my job market paper. It was written during my internship in the Monetary Policy Stance Division of the European Central Bank. The hospitality and stimulating research environment provided are gratefully acknowledged. I would like to thank all the participants of the seminar held at ECB's the Monetary Policy Stance Division for their useful comments and suggestions, in particular to Diego Rodriguez Palenzuela and Nuno Cassola. I am also very grateful to David Marqués Ibañez for his help. Clearly, any remaining errors are mine.
Does central bank communication signal future monetary policy? The case of the ECB
RePEc: Research Papers in Economics, 2019
We examine the European Central Bank's ad-hoc communication and explore how it informs future monetary policy decisions. Using the rich dataset of the intermeeting verbal communication among the members of the European Central Bank's Governing Council between 2008 and 2014, we construct a measure of communication assessing its inclination towards easing, tightening or maintaining the monetary policy stance. We find that this measure provides useful additional information about future monetary policy decisions, even when we control for market-based interest rate expectations and lagged decisions. Our results also suggest that, in particular, communication shortly before monetary policy meetings, related to unconventional measures and/or by the ECB President explain the future ECB rate changes well. Overall, these results point to the importance of transparency in understanding the future course of monetary policy.
Shocking markets: European stock markets and the ECB's monetary policy surprises
2008
This paper contributes to the literature measuring the response of stock markets to monetary policy actions. We analyze the reaction of European stock market returns to unexpected interest rate decisions by the ECB. Endogeneity between interest rate changes and stock returns is taken into account using the identification through heteroskedasticity approach. Relying on different methods to extract monetary policy shocks, we find a negative and significant relation between unexpected ECB decisions and European stock markets performance. Moreover, monetary policy decisions of the ECB are well anticipated by the market implying that the central bank successfully communicates its monetary policy. JEL Classification: E44, E47, E52 Abstract This paper contributes to the literature measuring the response of stock markets to monetary policy actions. We analyze the reaction of European stock market returns to unexpected interest rate decisions by the ECB. Endogeneity between interest rate changes and stock returns is taken into account using the identification through heteroskedasticity approach. Relying on different methods to extract monetary policy shocks, we find a negative and significant relation between unexpected ECB decisions and European stock markets performance. Moreover, monetary policy decisions of the ECB are well anticipated by the market implying that the central bank successfully communicates its monetary policy. JEL Classification: E44, E47, E52