News and Interest Rate Expectations: A Study of Six Central Banks

Ellis Connolly and Marion Kohler
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Ellis Connolly: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: In this paper we analyse the effect of news relating to the expected path of monetary policy on interest rate futures. Central banks’ transparency is in most respects much greater than it was a decade ago, and so central bank communication needs to be included as a potential source of news. We therefore consider four types of news: macroeconomic news, overseas news, monetary policy surprises and central bank communication. The effect of these types of news on daily changes in interest rate futures is estimated using an EGARCH model for a panel of six economies. We find that interest rate expectations respond to both macroeconomic and policy news, although the response to macroeconomic news is larger, especially once we include foreign news. Overall, the results suggest that the impact of the RBA’s communication policy is in line with other major central banks, and significantly influences (and informs) expectations of future monetary policy.

Keywords: central bank communication; news; interest rate futures (search for similar items in EconPapers)
JEL-codes: E52 E58 G14 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-fin, nep-ifn and nep-mac
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Citations: View citations in EconPapers (69)

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Chapter: News and Interest Rate Expectations: A Study of Six Central Banks (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2004-10

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