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Deconstructing Monetary Policy Surprises - The Role of Information Shocks Marek Jaroci´ nski and Peter Karadi European Central Bank FRBNZ Macro-Finance Conference, December 2018 The views expressed here are solely those of the authors and do not necessarily reflect the views of the ECB
Transcript of Deconstructing Monetary Policy Surprises - The Role of ... › - › media › reservebank ›...
Deconstructing Monetary Policy Surprises -
The Role of Information Shocks
Marek Jarocinski and Peter Karadi
European Central Bank
FRBNZ Macro-Finance Conference, December 2018
The views expressed here are solely those of the authors and do not necessarily reflectthe views of the ECB
What we do?
• We study how financial markets react to central bank policy an-
nouncements, within the first half-hour.
We separate the effects of
– news about monetary policy and
– news about the central bank’s outlook on the economy.
• We track the response of the economy, in the US and the euro area,
using a vector autoregression (VAR).
1/24
What we find
• Market reactions reflect both news about monetary policy and news
about the economy. Variance shares: US: 65:35, EA: 55:45.
• The responses of the economy are very different.
Surprise interest rates increases are ...
• contractionary (output, prices decline) when reflecting news about
monetary policy (monetary policy shock),
• expansionary (output, prices increase) when reflecting news about
the economy (central bank information shock).
2/24
Implications
1. Private agents learn something about the economy (not just about
monetary policy) from central bank annoucements.
2. These news about the economy attenuate the standard estimates of
monetary policy effects.
3/24
Plan of the presentation
• Key data
• Selected literature
• VAR, Identification, IRFs
• A structural DSGE interpretation
4/24
Key data: “surprises”
p - price of a financial asset
τ - time of a central bank announcement
surprise: m = p(τ + 20min)− p(τ − 10min)
We compute m for
- interest rate derivatives (US: fed funds futures, Euro area: Eonia
swaps). These instruments include also near term forward guidance.
- stock prices (US: S&P500, Euro area: EuroStoxx50)
5/24
Motivating example: FOMC announcement on March 20, 2001, 2:15pm
For immediate release
The Federal Open Market Committee at its meeting today decided
to lower its target for the federal funds rate by 50 basis points
to 5 percent. (...)
[The Committee’s analysis] (...) suggests substantial risks that
demand and production could remain soft.
→ fed funds futures and stock prices both drop between 2:05pm and
2:35pm
6/24
Expected effect on stock prices
• Textbook asset pricing: A monetary policy surprise → negative co-
movement between interest rates and stock markets
• lower fed funds rate:
→ lower credit costs, higher demand → higher future dividends
→ lower discount rate
⇒ present discounted value of dividends goes up = stock price goes
up
7/24
An empirical observation
Stock prices do not always
go up after a surprise interest
rate cut.
• noise?
• information about the
economy in the central
bank announcement?Surprise in the 3m FF futures
-0.3 -0.2 -0.1 0 0.1 0.2 0.3
Sur
pris
e in
the
S&
P50
0
-1
0
1
2
3
4
I: 17II: 66
III: 41 IV: 50
3/20/2001
8/24
An empirical observation
Stock prices do not always
go up after a surprise interest
rate cut.
• noise?
• information about the
economy in the central
bank announcement?Surprise in the 3m FF futures
-0.3 -0.2 -0.1 0 0.1 0.2 0.3
Sur
pris
e in
the
S&
P50
0
-1
0
1
2
3
4
Monetary Policy shock CB
Info
rmat
ion
shoc
k
8/24
Further investigation
• We separate the shock that makes interest rates and stock prices co-
move negatively (as they should after Mon.Pol. shock) from the shock
that makes them co-move positively.
• We use a Structural VAR with a mix of high-frequency identification
and sign restrictions.
• We study how the economy responds.
9/24
Selected literature
• Interest rate surprise≈monetary policy shock: Kuttner, 2001; Gurkaynak,Sack, Swanson, 2005; Barakchian, Crowe, 2013; Gertler, Karadi, 2015→ we add the central bank information shock
• Measurement of CB information shocks: Campbell et.al., 2016; Miranda-Agrippino, 2016; Lakdawala, Schaffer, 2016 – use Fed private info;Hansen and McMahon, 2016 – textual analysis of statements→ we use the markets as Andrade, Ferroni, 2016, Cieslak, Shrimpf,2018, Kerssenfischer, 2018
• Models of the information channel of monetary policy: Nakamura andSteinsson, 2018 QJE; Melosi, 2017 REStud→ we add communication policy, use VAR for estimation
10/24
Monthly VAR - data (US)
• 7× 1 vector
(mtyt
)where
– mt (2× 1): interest rate and stock price surprises that occurred in
month t
source: updated Gurkaynak, Sack and Swanson (2005) dataset
– yt (5 × 1): standard macroeconomic and financial variables in
month t
→ government bond yields, S&P500, real GDP and GDP deflator
(interpolated using Kalman filter, Stock and Watson 2010), Ex-
cess bond premium (Gilchrist and Zakrajsek, 2012)
11/24
VAR with surprises – restriction
mt - surprises (monthly), yt - macroeconomic variables (monthly)
mt are i.i.d.:(mtyt
)=
P∑p=1
(0 0
BpYM B
pY Y
)(mt−pyt−p
)+
(0cy
)+
(umtuyt
)
• Bayesian estimation with a Minnesota prior on the nonzero parameters
• Within the Gibbs sampler we also draw the missing observations on
mt
12/24
Our identification (Restrictions on the impact responses)
shock
variable Monetary policy CB information other(negative co-movement) (positive co-movement)
Interest rate surprise (m1t ) + + 0
Stock price surprise (m2t ) – + 0
All other variables (yt) • • •
• Two surprises: interest surprise and stock price surprise
• Zero restrictions: other shocks are unlikely to occur systematically in
the narrow time window around the announcements
• Sign restriction on the co-movement of surprises
• No restrictions on yt13/24
Sign restrictions
• mt is decomposed into two orthogonal shocks (MP,CBI)
• Set identification: uniform prior on rotations, provided that they are
consistent with sign restrictions.
Robustness check: ‘poor man’s sign restrictions’
• Quadrants II and IV: MP shocks; quadrants I and III: CBI shocks
14/24
For comparison: Standard high-frequency identification (HFI)
shock
variable Interest rate surprise other
Interest rate surprise (m1t ) + 0
All other variables (yt) • •
• Single surprise: interest rate
• Zero restrictions: other shocks are unlikely to occur systematically in
the narrow time window around the announcements
• Interest rate surprise ≈ monetary policy shock.
15/24
United States impulse responses
A. Standard HFI
Interest rate surprise
0 10 20 300
0.05
sur
pris
e in
3m ff
futu
res
0 10 20 30-0.1
0
0.1
0.2
1y g
ov b
ond
yi
eld
(%)
0 10 20 30
-2-101
S&
P50
0(1
00 x
log)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.05
0
0.05
EB
P(%
)
months
16/24
United States impulse responses
A. Standard HFI B. Sign restrictions
Interest rate surpriseMonetary Policy CB information
(negative correlation) (positive correlation)
0 10 20 300
0.05
sur
pris
e in
3m ff
futu
res
0 10 20 30-0.1
0
0.1
0.2
1y g
ov b
ond
yi
eld
(%)
0 10 20 30
-2-101
S&
P50
0(1
00 x
log)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.05
0
0.05
EB
P(%
)0 10 20 30
0
0.05
sur
pris
e in
3m ff
futu
res
0 10 20 300
0.05
0 10 20 30
-0.4-0.2
00.20.4
surp
rise
inS
&P
500
0 10 20 30
-0.4-0.2
00.20.4
0 10 20 30-0.1
0
0.1
0.2
1y g
ov b
ond
yi
eld
(%)
0 10 20 30-0.1
0
0.1
0.2
0 10 20 30
-2-101
S&
P50
0(1
00 x
log)
0 10 20 30
-2-101
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2
0
0.2
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1
0
0.1
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30
-0.05
0
0.05
months months months
17/24
United States impulse responses - zooming in on yt
A. Standard HFI B. Sign restrictions
Interest rate surpriseMonetary Policy CB information
(negative correlation) (positive correlation)
0 10 20 30-0.1
0
0.1
0.2
1y g
ov b
ond
yi
eld
(%)
0 10 20 30
-2-101
S&
P50
0(1
00 x
log)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30-0.1
0
0.1
0.2
1y g
ov b
ond
yi
eld
(%)
0 10 20 30-0.1
0
0.1
0.2
0 10 20 30
-2-101
S&
P50
0(1
00 x
log)
0 10 20 30
-2-101
0 10 20 30
-0.2
0
0.2R
eal G
DP
(100
x lo
g)
0 10 20 30
-0.2
0
0.2
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1
0
0.1
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30
-0.05
0
0.05
months months months
18/24
United States: shocks over time
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
Monetary Policy (sign restrictions)Central Bank Information (sign restrictions)
• Every month different mix of policy and information shock
• Both shocks occur throughout the sample.19/24
Euro area results
We have created a dataset of
ECB announcement surprises.
284 ECB policy announce-
ments from 1999 to 2016.
press release + press confer-
ence.
VAR results similar to the US
Surprise in the 3m Eonia swaps-0.3 -0.2 -0.1 0 0.1 0.2 0.3
Sur
pris
e in
the
Eur
o S
toxx
50
-3
-2
-1
0
1
2I: 61II: 57
III: 68 IV: 85
20/24
Euro area: IRFs (More information shocks in the mix)
Interest rate surprise
0 10 20 30-0.1
0
0.1
1y B
und
yiel
d (%
)
0 10 20 30
-2
0
2
ST
OX
X50
(100
x lo
g)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.5
0
0.5
BB
B b
ond
spre
ad (
%)
months months months
21/24
Euro area: IRFs (More information shocks in the mix)
Interest rate surprise Monetary Policy CB information(poor man’s s.r.) (poor man’s s.r.)
0 10 20 30-0.1
0
0.1
1y B
und
yiel
d (%
)
0 10 20 30
-2
0
2
ST
OX
X50
(100
x lo
g)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.5
0
0.5
BB
B b
ond
spre
ad (
%)
0 10 20 30-0.1
0
0.1
1y B
und
yiel
d (%
)
0 10 20 30-0.1
0
0.1
0 10 20 30
-2
0
2
ST
OX
X50
(100
x lo
g)
0 10 20 30
-2
0
2
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2
0
0.2
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1
0
0.1
0 10 20 30
-0.5
0
0.5
BB
B b
ond
spre
ad (
%)
0 10 20 30
-0.5
0
0.5
months months months
21/24
A structural interpretation
• ... through the lenses of a standard DSGE model with financial fric-
tions Gertler-Karadi, 2011, 2013). We match impulse responses.
• To explain real effects of monetary policy shocks
– Nominal frictions less important
– Financial frictions more important
in our identification vs. the standard HFI identification.
22/24
Why does the economy respond to the CB information shock?
Alternative stories behind the IRFs
• Central banks have superior information on fundamentals (Romer and
Romer 2000). This information would have become apparent anyway,
central bank merely reveals it a bit earlier. Announcements predict
the trajectory of the economy. → Nakamura and Steinsson (2018)
• Self-fulfilling announcements (unexplored). Confidence; strategic com-
plementarities. Public signal, even imprecise, affects the equilibrium.
Announcements cause the trajectory of the economy.
23/24
Conclusions
• We partition interest rate surprises into two components:
– monetary policy shock - an interest rate increase followed by acontraction,
– central bank information shock - an interest rate increase followedby an expansion.
• Lessons
– Stronger effects of monetary policy on the economy (we purge theattenuation bias from the information effects)
– Central bank information is relevant. We don’t know if it causesor merely predicts the trajectory of the economy.
24/24
Additional slides
25/24
Refining the information shocks
We add daily change in inflation compensation to high-frequency variables
shock
variable Monetary Central Bank Central BankPolicy Demand Supply all
mt (high frequency)interest rate + + + 0stock index – + – 0inflation compensation – + + 0
yt (low frequency). . . • • • •
26/24
Refining the information shocks: results
Monetary Policy CB demand CB supply
0 20-0.1
0
0.1
0.2
1y g
ovt.
bond
yi
eld
(%)
0 20-0.1
0
0.1
0.2
0 20-0.1
0
0.1
0.2
0 20
-2-101
S&
P50
0(1
00 x
log)
0 20
-2-101
0 20
-2-101
0 20
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 20
-0.2
0
0.2
0 20
-0.2
0
0.2
0 20
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 20
-0.1
0
0.1
0 20
-0.1
0
0.1
0 20
-0.05
0
0.05
EB
P(%
)
0 20
-0.05
0
0.05
0 20
-0.05
0
0.05
27/24
Relaxing the zero restrictions - almost the same
with zero restrictions on B without zero restrictions on B
0 10 20 300
0.05 s
urpr
ise
in3m
ff fu
ture
s
0 10 20 300
0.05
0 10 20 30
-0.4-0.2
00.20.4
surp
rise
inS
&P
500
0 10 20 30
-0.4-0.2
00.20.4
0 10 20 30
-0.050
0.050.1
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
-0.050
0.050.1
0 10 20 30-2-101
S&
P50
0(1
00 x
log)
0 10 20 30-2-101
0 10 20 30
-0.2-0.1
00.1
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2-0.1
00.1
0 10 20 30
-0.05
0
0.05
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.05
0
0.05
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30
-0.05
0
0.05
0 10 20 30
0
0.02
0.04
sur
pris
e in
3m ff
futu
res
0 10 20 30
0
0.02
0.04
0 10 20 30
-0.4-0.2
00.20.4
surp
rise
inS
&P
500
0 10 20 30
-0.4-0.2
00.20.4
0 10 20 30
-0.050
0.050.1
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
-0.050
0.050.1
0 10 20 30
-1
0
1
S&
P50
0(1
00 x
log)
0 10 20 30
-1
0
1
0 10 20 30-0.2-0.1
00.1
Rea
l GD
P(1
00 x
log)
0 10 20 30-0.2-0.1
00.1
0 10 20 30-0.08-0.06-0.04-0.02
00.020.04
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30-0.08-0.06-0.04-0.02
00.020.04
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30
-0.05
0
0.05
28/24
US VAR: Robust error bands (Giacomini-Kitagawa, 2015)
Monetary policy CB information(negative co-movement) (positive co-movement)
0 10 20 30-0.1
00.10.2
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30-0.1
00.10.2
0 10 20 30
-2
0
2S
&P
500
(100
x lo
g)
0 10 20 30
-2
0
2
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2
0
0.2
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1
0
0.1
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30
-0.05
0
0.05
months months
29/24
US VAR: 2-year rate as instrument
A. Standard HFI B. Sign restrictions2-year interest rate
surpriseMonetary policy CB information
(negative co-movement) (positive co-movement)
0 10 20 30
-0.050
0.050.1
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
-1-0.5
00.5
S&
P50
0(1
00 x
log)
0 10 20 30
-0.2
-0.1
0
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
-0.05
0
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
00.020.04
EB
P(%
)
0 10 20 30-0.1
0
0.1
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30-0.1
0
0.1
0 10 20 30-2-101
S&
P50
0(1
00 x
log)
0 10 20 30-2-101
0 10 20 30
-0.2-0.1
00.1
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2-0.1
00.1
0 10 20 30
-0.1-0.05
00.05
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1-0.05
00.05
0 10 20 30
-0.05
0
0.05
EB
P(%
)
0 10 20 30
-0.05
0
0.05
months months months
30/24
US VAR: sample until December 2006
A. Standard HFI B. Sign restrictions
interest rate surpriseMonetary policy CB information
(negative co-movement) (positive co-movement)
0 10 20 30-0.1
00.10.2
1y g
ov b
ond
yi
eld
(%)
0 10 20 30-2
-1
0
S&
P50
0(1
00 x
log)
0 10 20 30
-0.2-0.1
00.1
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
-0.05
0
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.020
0.020.040.06
EB
P(%
)
0 10 20 30-0.1
00.10.2
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30-0.1
00.10.2
0 10 20 30-2
-1
0
S&
P50
0(1
00 x
log)
0 10 20 30-2
-1
0
0 10 20 30
-0.2-0.1
00.1
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2-0.1
00.1
0 10 20 30
-0.1-0.05
00.05
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1-0.05
00.05
0 10 20 30-0.05
0
0.05
EB
P(%
)
0 10 20 30-0.05
0
0.05
months months months
31/24
US: the GSS decomposition is different from ours
A. Standard HFI C. GSS(2005)
Interest rate surprise Target factor Path factor
0 10 20 30
0
0.1
0.2
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
-1.5-1
-0.50
S&
P50
0(1
00 x
log)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
0
0.02
0.04
EB
P(%
)
0 10 20 30
0
0.1
0.2
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
0
0.1
0.2
0 10 20 30-1.5
-1-0.5
00.5
S&
P50
0(1
00 x
log)
0 10 20 30-1.5
-1-0.5
00.5
0 10 20 30
-0.2-0.1
00.1
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2-0.1
00.1
0 10 20 30
-0.1
-0.05
0
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1
-0.05
0
0 10 20 30
-0.020
0.020.04
EB
P(%
)
0 10 20 30
-0.020
0.020.04
months months months
32/24
US VAR with IP and CPI
standard HFI sign restrictions
0 10 20 30-0.1
0
0.1
0.2
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
-2
-1
0
1
S&
P50
0(1
00 x
log)
0 10 20 30
-0.6-0.4-0.2
0
Ind.
Pro
d.(1
00 x
log)
0 10 20 30
-0.10
0.1
CP
I(1
00 x
log)
0 10 20 30-0.05
0
0.05
EB
P(%
)
0 10 20 30
0
0.1
0.2
1y g
ovt.
bond
yi
eld
(%)
0 10 20 30
0
0.1
0.2
0 10 20 30
-2-101
S&
P50
0(1
00 x
log)
0 10 20 30
-2-101
0 10 20 30
-0.6-0.4-0.2
0
Ind.
Pro
d.(1
00 x
log)
0 10 20 30
-0.6-0.4-0.2
0
0 10 20 30
-0.10
0.1
CP
I(1
00 x
log)
0 10 20 30
-0.10
0.1
0 10 20 30-0.05
0
0.05
EB
P(%
)
0 10 20 30-0.05
0
0.05
33/24
US VAR: Responses of expectations
A. Standard HFI B. Sign restrictions
Monetary PolicyMonetary Policy CB information
(negative correlation) (positive correlation)
0 10 20 30
Exp
ecte
d G
DP
gro
wth
(%
)
-0.1
0
0.1
0 10 20 30
Exp
ecte
d G
DP
gro
wth
(%
)
-0.1
0
0.1
0 10 20 30
-0.1
0
0.1
0 10 20 30
Exp
ecte
din
flatio
n (%
)
-0.1
0
0.1
0 10 20 30
Exp
ecte
din
flatio
n (%
)
-0.1
0
0.1
0 10 20 30
-0.1
0
0.1
0 10 20 30
5y b
reak
-eve
nin
flatio
n ra
te (
%)
-0.1
-0.05
0
0.05
0 10 20 30
5y b
reak
-eve
nin
flatio
n ra
te (
%)
-0.1
-0.05
0
0.05
0 10 20 30
-0.1
-0.05
0
0.05
months months months
• Positive impact of GDP-growth expectations in standard HFI
is due to information channel (as in Nakamura, Steinsson,
2018)
• Delayed adjustment (Coibion, Gorodnichenko, 2012)
34/24
Euro area VAR: IRFs (More information shocks in the mix)
Interest rate surprise Monetary Policy CB information(sign restr.) (sign restr.)
0 10 20 30-0.1
0
0.1
1y B
und
yiel
d (%
)
0 10 20 30
-2
0
2
ST
OX
X50
(100
x lo
g)
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.5
0
0.5
BB
B b
ond
spre
ad (
%)
0 10 20 30-0.1
0
0.1
1y B
und
yiel
d (%
)
0 10 20 30-0.1
0
0.1
0 10 20 30
-2
0
2
ST
OX
X50
(100
x lo
g)
0 10 20 30
-2
0
2
0 10 20 30
-0.2
0
0.2
Rea
l GD
P(1
00 x
log)
0 10 20 30
-0.2
0
0.2
0 10 20 30
-0.1
0
0.1
GD
P d
efla
tor
(100
x lo
g)
0 10 20 30
-0.1
0
0.1
0 10 20 30
-0.5
0
0.5
BB
B b
ond
spre
ad (
%)
0 10 20 30
-0.5
0
0.5
months months months
35/24
Euro area VAR with IP and HICP
Interest rate surprise Monetary Policy CB information(sign restr.) (sign restr.)
0 10 20 30
-0.05
0
0.05
1y g
ovt.
bond
yiel
d D
E (
%)
0 10 20 30
-1012
ST
OX
X50
(100
x lo
g)
0 10 20 30
-0.20
0.2
IP (100
x lo
g)
0 10 20 30
-0.15-0.1
-0.050
HIC
P
0 10 20 30-0.4
-0.2
0
0.2
BB
B b
ond
spre
ad (
%)
0 10 20 30
-0.050
0.050.1
1y g
ovt.
bond
yiel
d D
E (
%)
0 10 20 30
-0.050
0.050.1
0 10 20 30
-1012
ST
OX
X50
(100
x lo
g)
0 10 20 30
-1012
0 10 20 30
-0.20
0.20.4
IP (100
x lo
g)
0 10 20 30
-0.20
0.20.4
0 10 20 30
-0.1
0
0.1
HIC
P
0 10 20 30
-0.1
0
0.1
0 10 20 30-0.4-0.2
00.2
BB
B b
ond
spre
ad (
%)
0 10 20 30-0.4-0.2
00.2
months months months
36/24
Euro area: shocks over time
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-30
-25
-20
-15
-10
-5
0
5
10
15
Monetary Policy (sign restrictions)Central Bank Information (sign restrictions)
• August 2011: no IR change; “particularly high” uncertainty
• July 2012: IR cut, because “downside risks have materialized”
• October 1999: Millenium bug
37/24
Construction of high-frequency surprises for the 3-month Eonia swap
4.5
4.55
4.6
4.65
4.7
08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00
Bid Price Ask Price midquote
EUREON3M 2001-05-10
.8.8
5.9
.95
1
08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00
Bid Price Ask Price midquote
EUREON3M 2011-03-03
38/24
