The Term Structure of Announcement Effects

36 Pages Posted: 13 Dec 2005

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: January 2001

Abstract

We analyse high-frequency responses of the US yield curve to macroeconomic announcements, exploiting the high signal-to-noise ratios of these events. Surprises in the announcements evoke relatively weak reactions from the short maturities and the strong ones from the intermediate maturities. Thus the term structure of announcement effects is hump-shaped. We fit an affine-yield model to the yield changes, using the announcement surprises as instruments for the Generalised Method of Moments (GMM). The model estimates imply that the announcements impose larger shocks on an expected future target interest rate than on the current short-term interest rate and that different types of announcements generate different expectations about this target rate, how rapidly it will be approached, and how long it will be maintained

Keywords: Announcements, Term structure, Expectations

JEL Classification: E43, E44, G14

Suggested Citation

Fleming, Michael J. and Remolona, Eli M., The Term Structure of Announcement Effects (January 2001). BIS Working Paper No. 71, Available at SSRN: https://ssrn.com/abstract=166430 or http://dx.doi.org/10.2139/ssrn.166430

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

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HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

IFC 2 Bldg, 78/F
Central
Hong Kong
Hong Kong
+852 2982 7150 (Phone)
+852 2982 7123 (Fax)

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