Bank of Lithuania
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2020-10-08

Euro Area Monetary Communications: Excess Sensitivity and Perception Shocks

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We explore new dimensions of the ECB’s monetary communications using the Euro Area Monetary Policy Event-Study Database (EA-MPD) built by Altavilla et al. (2019). We find that three new factors are needed to capture an excess sensitivity of long-term sovereign yields around monetary announcements. "Duration" surprises cause variations in real long-term rates and are mainly transmitted by term premiums. The "Sovereign spread" and "Save the Euro" surprises greatly influence the long-term yields of the periphery countries. These effects are difficult to reconcile with classic monetary policy shocks. We therefore study their underlying nature and discover that they have the characteristics of "Information", or what we label "Perception" shocks.

Keywords: Monetary surprises, Event-study, Excess sensitivity, Perception shocks, High-frequency Identification.

JEL Codes: E43, E44, E52, E58, G12.

Monetary surprises, Event-study, Excess sensitivity, Perception shocks, High-frequency Identification