Interest rate expectations and uncertainty during ECB governing council days: evidence from intraday implied densities of 3-month Euribor

Josep Maria Puigvert Gutiérrez and Olivier Vergote

No 1391, Working Paper Series from European Central Bank

Abstract: This paper analyses changes in short-term interest rate expectations and uncertainty during ECB Governing Council days. For this purpose, it first extends the estimation of risk-neutral probability density functions up to tick frequency. In particular, the non-parametric estimator of these densities, which is based on fitting implied volatility curves, is applied to estimate intraday expectations of threemonth EURIBOR three months ahead. The estimator proves to be robust to market microstructure noise and able to capture meaningful changes in expectations. Estimates of the noise impact on the statistical moments of the densities further enhance the interpretation. In addition, the paper assesses the impact of the ECB communication during Governing Council days. The results show that the whole density may react to the communication and that such repositioning of market participants JEL Classification: C14, E43, E52, E58, E61

Keywords: announcement effects; central bank communication; interest rate expectations; intraday analysis; option-implied densities; risk-neutral probability density functions; tick data (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba and nep-mon
Note: 1503965
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Interest rate expectations and uncertainty during ECB Governing Council days: Evidence from intraday implied densities of 3-month EURIBOR (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111391

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