Macroeconomic surprises and financial market reactions: insights into euro-area interest rates

Riccardo Poli () and Giulio Carlo Venturi ()
Additional contact information
Riccardo Poli: Bank of Italy
Giulio Carlo Venturi: Bank of Italy

No 959, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper examines how euro-area (EA) interest rates react to EA and US macroeconomic surprises. We find that the sensitivity of interest rates to surprises varies across tenors and over time. Short-term OIS rates are significantly less sensitive to macroeconomic surprises than longer-term rates. During the forward guidance period (2013-22), interest rate reactivity was rather muted, especially at the short end of the yield curve. Term premia accounted almost entirely for the sensitivity observed at the long end of the curve. Since the ECB’s adoption of a data-dependent and meeting-by-meeting approach, interest rate sensitivity has forcefully surged back to the levels observed during the Great Financial Crisis. In particular, EA OIS rates have become highly sensitive to US surprises, thus pointing to significant spillovers from US economic developments to EA financial conditions. Monetary policy uncertainty amplifies the sensitivity of interest rates to surprises, especially to those related to US economic developments and for the expected short term rate component.

Keywords: macroeconomic surprises; monetary policy; interest rates; central bank communication (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2025-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/qef/2025-0959/QEF_959_25.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_959_25

Access Statistics for this paper

More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().