Euro-Area Yield Curve Reaction to Monetary News

2010 ◽  
Vol 11 (2) ◽  
pp. 208-224 ◽  
Author(s):  
Jèrôme Coffinet ◽  
Sylvain Gouteron

Abstract Using intraday data, we assess the impact of monetary news on the full length of the euro-area yield curve. We find that the publication of monetary data has a significant impact on interest rates with maturities ranging from one to ten years, with the largest effect on the one- to five-year segment. These results suggest that when gauging the policy-relevant signals, market participants look through short-term movements of annual M3 growth and focus instead on the trend rate of monetary expansion over the medium term.

2018 ◽  
Vol 08 (01) ◽  
pp. 1840002 ◽  
Author(s):  
Marcello Pericoli ◽  
Giovanni Veronese

We document how the impact of monetary surprises on euro-area and US financial markets has changed from 1999 to date. We use a definition of monetary policy surprises, which singles out movements in the long-end of the yield curve — rather than those changing nearby futures on the central bank reference rates. By focusing only on this component of monetary policy, our results are more comparable over time. We find a hump-shaped response of the yield curve to monetary policy surprises, both in the pre-crisis period and since 2013. During the crisis years, Fed path-surprises, largely through their effect on term premia, account for the impact on interest rates, which is found to be increasing in tenor. In the euro area, the path-surprises reflect the shifts in sovereign spreads, and have a large impact on the entire constellation of interest rates, exchange rates and equity markets.


Ekonomika ◽  
2010 ◽  
Vol 89 (3) ◽  
pp. 30-39
Author(s):  
Jerzy Stelmach

Although there are many different interest rates in the economy, in theoretical and applied model building these distinctions are usually ignored by assuming that there is only one, “true” interest rate. Hence, the aim of this article is twofold. First, we empirically examine whether such assumption is plausible for the Euro area yield curve data. Second, using different time spans we try to assess the impact of the financial crisis on the validity of this assumption. For both purposes, the principal component analysis technique will be employed.


2021 ◽  
Author(s):  
Dominika Ehrenbergerova ◽  
Josef Bajzik ◽  
Tomas Havranek

Several central banks have leaned against the wind in the housing market by increasing the policy rate preemptively to prevent a bubble. Yet the empirical literature provides mixed results on the impact of short-term interest rates on house prices: the estimated semi-elasticities range from -12 to positive values. To assign a pattern to these differences, we collect 1,447 estimates from 31 individual studies that cover 45 countries and 69 years. We then relate the estimates to 39 characteristics of the financial system, business cycle, and estimation approach. Our main results are threefold. First, the mean reported estimate is exaggerated by publication bias, because insignificant results are underreported. Second, omission of important variables (liquidity and long-term rates) likewise exaggerates the effects of short-term rates on house prices. Third, the effects are stronger in countries with more developed mortgage markets and generally later in the cycle when the yield curve is flat and house prices enter an upward spiral.


2004 ◽  
Vol 7 (1) ◽  
pp. 132-150 ◽  
Author(s):  
P Le Roux ◽  
B Ismail

Even though econometric models and yield curve analysis are useful in assessing the impact of interest rate changes on the economic structure, their power to predict the magnitude and direction of swings in the business cycle is often restricted to the use of short-term interest rates. From an Austrian school perspective on interest rates, empirical evidence suggests that the profitability of heavy industries further downstream outperforms that of light industries in the initial stages of monetary easing, due to a rising demand for investment goods and a rise in capacity utilisation levels. This paper assesses the impact of interest rates changes on the productive structure of the economy by taking into account the effect thereof on sector earnings and ultimately share prices.


2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Jared Kreiner

Abstract In 21 CE, a series of localized movements broke out in Gallia Comata due to heavy debts among provincials according to Tacitus. Modern scholars have long argued that the indebtedness occurred because of rising interest rates, resulting from dwindling currency in circulation after decades of free-spending following Augustus’ victory at Actium, and that Gallic communities were subjected to an additional tribute to support the wars of Germanicus (14–16 CE), which continued unabated after the wars and pushed Gauls beyond their means. These claims are misguided, however, in that there is no certain evidence of a special tax to support Germanicus’ wars and that the argument for a dwindling circulation of currency in Gaul falters under closer inspection. Rather, the pressing statal and military needs imposed on communities in Gallia Comata after 9 CE on top of routine exactions could significantly increase burden levels levied on provincial populations, thus contributing to rising debts. Through examining how Roman logistics and conscription operated in this period, it is possible to trace how populations were impacted by such demands and which communities were most heavily affected by them, too. Individually, the impact of each factor is unlikely to have been burdensome enough to have caused large-scale resistance, it is only the cumulative effect that these explanations had on top of routine Roman extraction schemes that could create the conditions for this revolt. This paper argues that in extraordinary circumstances, such as the period after the Varian Disaster for Gallia Comata, the costs of supporting military campaigns places real short-term strains on local economies, which creates the conditions for revolt. The benefit of this approach is that it may explain other episodes of anti-fiscal resistance that broke out during or within a decade of wars in neighboring regions.


2005 ◽  
Vol 08 (04) ◽  
pp. 687-705 ◽  
Author(s):  
D. K. Malhotra ◽  
Vivek Bhargava ◽  
Mukesh Chaudhry

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap market's response to higher default risk seems to be higher spread between the bid and offer rates.


Author(s):  
Steven Moran ◽  
Nicholas A. Lester ◽  
Eitan Grossman

In this paper, we investigate evolutionarily recent changes in the distributions of speech sounds in the world's languages. In particular, we explore the impact of language contact in the past two millennia on today's distributions. Based on three extensive databases of phonological inventories, we analyse the discrepancies between the distribution of speech sounds of ancient and reconstructed languages, on the one hand, and those in present-day languages, on the other. Furthermore, we analyse the degree to which the diffusion of speech sounds via language contact played a role in these discrepancies. We find evidence for substantive differences between ancient and present-day distributions, as well as for the important role of language contact in shaping these distributions over time. Moreover, our findings suggest that the distributions of speech sounds across geographic macro-areas were homogenized to an observable extent in recent millennia. Our findings suggest that what we call the Implicit Uniformitarian Hypothesis, at least with respect to the composition of phonological inventories, cannot be held uncritically. Linguists who would like to draw inferences about human language based on present-day cross-linguistic distributions must consider their theories in light of even short-term language evolution. This article is part of the theme issue ‘Reconstructing prehistoric languages’.


2020 ◽  
Vol 15 (1) ◽  
pp. 30-41
Author(s):  
Liběna Černohorská ◽  
Darina Kubicová

The purpose of this paper is to analyze the impact of negative interest rates on economic activity in a selected group of countries, in particular Sweden, Denmark, and Switzerland, for the period 2009–2018. The central banks of these countries were among the first to implement negative interest rates to revive the economic growth. Therefore, this study analyzed long- and short-term relationships between interest rates announced by central banks and gross domestic product and blue chip stock indices. Time series analysis was conducted using Engle-Granger cointegration analysis and Granger causality testing to identify long- and short-term relationship. The first step, using the Akaike criteria, was to determine the optimal delay of the entire time interval for the analyzed periods. Time series that seem to be stationary were excluded based on the results of the Dickey-Fuller test. Further testing continued with the Engle-Granger test if the conditions were met. It was designed to identify co-integration relationships that would show correlation between the selected variables. These tests showed that at a significance level of 0.05, there is no co-integration between any time series in the countries analyzed. On the basis of these analyses, it was determined that there were no long-term relationships between interest rates and GDP or stock indices for these countries during the monitored time period. Using Granger causality, the study only confirmed short-term relationship between interest rates and GDP for all examined countries, though not between interest rates and the stock indices. Acknowledgment The paper has been created with the financial support of The Czech Science Foundation GACR 18-05244S – Innovative Approaches to Credit Risk Management.


1989 ◽  
Vol 127 ◽  
pp. 7-25

On this occasion we have adopted a rather different format for this chapter from the customary one. Part One begins with an analysis of some of the most important developments of the past few years, with notes on the deterioration in the balance of payments, on the fall in the savings ratio and on the acceleration of inflation. Next we discuss some of the problems associated with economic forecasting. We analyse the errors made last year and compare them with the error margins normally associated with short-term forecasts of this kind. We look at the behaviour of the economy at the corresponding stage of previous economic cycles. And we consider the best way of forecasting GDP when there are discrepancies between the measures of its growth in the past. Our central forecasts for 1989 and 1990 are described briefly in the text of Part Two, and more fully set out in the usual tables. We end in Part Three with a discussion of alternative scenarios for the medium term, with particular reference to their implications for interest rates and the exchange rate. An appendix describes the regional pattern of unemployment and the way it has changed since the early 1980s.


2007 ◽  
Vol 201 ◽  
pp. 4-7
Author(s):  
Martin Weale

The July interest rate increase has taken the Bank of England's Base Rate to the highest value for six years. In figure 1 we show the forward estimates for the nominal short-term interest rate taken from the Bank of England's yield curve tables for both government debt and liabilities of commercial banks. These are in effect market forecasts of the short-term rate produced in the past. The graph shows that the market has been taken somewhat by surprise by rising short-term interest rates. Two years ago the market was forecasting a rate of around 4 per cent per annum for July 2007. Nor were the probabilities the market gave to an interest rate of 5.75 per cent per annum very high. Twelve months ago the market in financial options implied that the chance of the rate exceeding 5.66 per cent per annum was only 15 per cent. Even in January of this year the chance of it reaching its current level or higher was put at less than 25 per cent. The National Institute cannot claim a substantially better record at forecasting interest rates. We normally use market expectations, as calculated from the yield curve, to provide exogenous forecasts as input into our model in the short term.


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