Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210116 
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 6/2017
Publisher: 
Norges Bank, Oslo
Abstract: 
Based on high-frequency data for Norway and Sweden, we investigate to what extent explicit forward guidance from monetary policy makers, by means of publishing the path of expected future policy rates, affects the market yield curve. We summarise movements in the yield curve by two latent factors (the 'target factor' and 'market path factor'), which capture market participants' assessment of all relevant monetary policy communication made available on announcement days. We then show that information contained in the published interest rate path has a significant effect on the market path, and can explain up to 47% of the market path factor. Hence, we conclude that 'explicit' forward guidance in the form of publishing the interest rate path succeeds in moving markets in the desired direction. Furthermore, our results show that central bank and market revisions of interest rate expectations are strongly correlated. This suggests that market participants to a large extent understand the monetary policy reaction pattern.
Subjects: 
monetary policy
forward guidance
interest rates
JEL: 
E43
E44
E52
E58
G12
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-972-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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