ECB MONETARY POLICY CONSISTENCY AND INTERBANK INTEREST RATES FORECASTS
The European Central Bank has often declared that it has two main monetary policy tools: the official interest rate (Repo) and its communications to the public (the monthly President’s Conferences above all). In this paper an ECB’s reaction function formed by a system of two non-linear equatio...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Academica Brâncuşi
2011-03-01
|
| Series: | Analele Universităţii Constantin Brâncuşi din Târgu Jiu : Seria Economie |
| Subjects: | |
| Online Access: | http://www.utgjiu.ro/revista/ec/pdf/2011-01/2_GIOVANNI_VERGA.pdf |
| Summary: | The European Central Bank has often
declared that it has two main monetary policy
tools: the official interest rate (Repo) and its
communications to the public (the monthly
President’s Conferences above all). In this paper
an ECB’s reaction function formed by a system of
two non-linear equations is employed to explain
both ECB’s Repo and communications, and to
verify if the two policy instruments are used
consistently. It turned out that the estimated system
is particularly robust, and the consistently is
proved. During the financial crisis, however, also
an index of monetary market risk must enter the
equations in order to maintain the other
parameters stable. By employing those two
monetary policy tools as regressors, along with
risk and liquidity, a good deal of the future
changes in the interbank interest rates can be
explained. During the crisis such forecasts are
much better than those obtained by applying the
usual term structure theory. |
|---|---|
| ISSN: | 1844-7007 1844-7007 |