Convergence and anchoring of yield curves in the Euro area

Michael Ehrmann, Marcel Fratzscher, Refet Gürkaynak and Eric T. Swanson

No 2007-24, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We study the convergence of European bond markets and the anchoring of inflation expectations in euro area countries using high-frequency bond yield data for France, Germany, Italy and Spain. We find that Economic and Monetary Union (EMU) has led to substantial convergence in euro area sovereign bond markets in terms of interest rate levels, unconditional daily fluctuations, and conditional responses to major macroeconomic data announcements. Our findings also suggest a substantial increase in the anchoring of long-term inflation expectations since EMU, particularly for Italy and Spain, which since monetary union have seen their long-term interest rates become much lower, much less volatile, and much better anchored in response to news. Finally, the reaction of far-ahead forward interest rates to macroeconomic announcements has converged substantially across euro area countries and even been eliminated over time, thus underlining not only market integration but also the credibility that financial markets attach to monetary policy in the euro area.

Keywords: bond; markets (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Convergence and Anchoring of Yield Curves in the Euro Area (2011)
Working Paper: CONVERGENCE AND ANCHORING OF YIELD CURVES IN THE EURO AREA (2009)
Working Paper: Convergence and Anchoring of Yield Curves in the Euro Area (2007)
Working Paper: Convergence and anchoring of yield curves in the euro area (2007)
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