Monetary policy signaling and movements in the term structure of interest rates

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2006.06.002 Byline: Malin Andersson (a), Hans Dillen (b), Peter Sellin (b) Keywords: Monetary policy signaling; Central bank communication; Term structure of interest rates Abstract: This paper examines how various monetary policy signals such as repo rate changes, inflation reports, speeches, and minutes from monetary policy meetings affect the term structure of interest rates. We find that unexpected movements in the short end of the yield curve are mainly driven by unexpected changes in the repo rate. However, published inflation reports and speeches also have some impact on short rates. Speeches are found to be a more important determinant for the longer end of the term structure. Our conclusion is that central bank communication is an essential part of the conduct of monetary policy. Author Affiliation: (a) European Central Bank, Postfach 160319, D-60066 Frankfurt am Main, Germany (b) Monetary Policy Department, Sveriges Riksbank, 10337 Stockholm, Sweden Article History: Received 13 April 2005; Revised 13 February 2006; Accepted 1 June 2006 Article Note: (footnote) [star] We are grateful for useful comments from Robert Chirinko, Peter Englund, Torsten Persson, Lars E.O. Svensson, Ulf Soderstrom, Anders Vredin, and seminar participants at the Sveriges Riksbank and Bank for International Settlements and an anonymous referee. Of course, we are responsible for all remaining errors. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the European Central Bank or the Executive Board of Sveriges Riksbank.