Learning the rules of the new game? Comparing the reactions in financial markets to announcements before and after the Bank of England's operational independence

This paper uses high frequency data to analyse how the Bank of England's operational independence has changed the way in which markets react immediately after economic releases. Other things being equal, the increase in transparency embedded in the new framework will make monetary policy more p...

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Bibliographic Details
Published inBank of England. Quarterly Bulletin Vol. 45; no. 2; p. 179
Main Author Lasaosa, Ana
Format Trade Publication Article
LanguageEnglish
Published London Bank of England. Economics Division. Bulletin Group 01.07.2005
Subjects
Analysis
Capital markets
Central banks
Decision making
Economic policy
Economic statistics
Inflation
Interest rates
Learning
Macroeconomics
Markets
Monetary policy
Transparency
United Kingdom > UK
Online AccessGet full text
ISSN0005-5166
2399-4568

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Summary:This paper uses high frequency data to analyse how the Bank of England's operational independence has changed the way in which markets react immediately after economic releases. Other things being equal, the increase in transparency embedded in the new framework will make monetary policy more predictable once the latest macroeconomic data are known. On this view, the market will be less sensitive to interest rate decisions and more sensitive to macroeconomic data releases. Previous research on the subject showed a more muted immediate reaction to macroeconomic releases in the United Kingdom after 1997; this suggested that markets were still learning the rules of the new monetary framework. Using two more years of data, this paper finds that that is still the case. Macroeconomic releases continue to move the markets less in the extended post-independence period, and interest rate changes the same or more.
ISSN:0005-5166
2399-4568