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A statistical approach to identifying ECB monetary policy

Author

Listed:
  • Akkaya, Yıldız
  • Bitter, Lea
  • Brand, Claus
  • Fonseca, Luís
Abstract
We construct monetary policy indicators from high-frequency asset price changes following policy announcements, emphasising the concentration of asset price responses along specific dimensions and their leptokurtic distribution. Traditionally, these dimensions are identified by rotating principal components based on economic assumptions that overlook information in excess kurtosis. We employ Varimax rotation, leveraging excess kurtosis without using economic restrictions. Within a set of euro-area risk-free assets Varimax validates policy news along dimensions previously derived from structural identification approaches and rejects evidence of macroinformation shocks. Yet, once adding risky assets Varimax identifies only one risk-free factor in medium- to long-term yields and instead points to additional risk-shift factors. JEL Classification: E43, E52, E58, C46, G14

Suggested Citation

  • Akkaya, Yıldız & Bitter, Lea & Brand, Claus & Fonseca, Luís, 2024. "A statistical approach to identifying ECB monetary policy," Working Paper Series 2994, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242994
    Note: 92649
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2994~6c2bcefa86.en.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    event study; fat tails; high-frequency identification; monetary policy instruments; Varimax;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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