The effect of ECB forward guidance on policy expectations

Paul Hubert (1) , Fabien Labondance (1)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of private short-term interest rate expectations. We estimate the static and dynamic impact of forward guidance on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements decrease most of the term structure of private short-term interest rate expectations, this being robust to several specifications. The effect is stronger on longer maturities and persistent.

Keywords: Central Bank communication; Short term interest rate expectations; OIS

Domains: Humanities and Social Sciences; Economics and Finance

Paul Hubert, Fabien Labondance. The effect of ECB forward guidance on policy expectations. 2016. ⟨hal-03459188⟩