Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153825
Authors: 
Vergote, Olivier
Puigvert Gutiérrez, Josep Maria
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1391
Abstract: 
This paper analyses changes in short-term interest rate expectations and uncertainty during ECB Governing Council days. For this purpose, it first extends the estimation of risk-neutral probability density functions up to tick frequency. In particular, the non-parametric estimator of these densities, which is based on fitting implied volatility curves, is applied to estimate intraday expectations of threemonth EURIBOR three months ahead. The estimator proves to be robust to market microstructure noise and able to capture meaningful changes in expectations. Estimates of the noise impact on the statistical moments of the densities further enhance the interpretation. In addition, the paper assesses the impact of the ECB communication during Governing Council days. The results show that the whole density may react to the communication and that such repositioning of market participants’ expectations will contain information beyond that of changes in the consensus view already observed in forward rates. The results also point out the relevance of the press conference in providing extra information and triggering an adjustment process for interest rate expectations.
Subjects: 
announcement effects
central bank communication
interest rate expectations
intraday analysis
option-implied densities
risk-neutral probability density functions
tick data
JEL: 
C14
E43
E52
E58
E61
Document Type: 
Working Paper

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