14 Jan 2014
Flash: Everyone is doing it – Bank of America Merrill Lynch
FXstreet.com (Guatemala) - Gustavo Reis, analyst at Bank of America Merrill Lynch explained that the Abenomics may have topped the charts but forward guidance also made it into the main hypes of 2013.
Key Quotes:
“And the gloss is carrying over to this year as both the Fed and the ECB recently strengthened their respective guidance. This reflects policymakers' judgment that the communication tool has been successful. But, as with other unconventional policy options, conveying this success is a challenge. How effective has forward guidance been in the US, euro area and the UK?”.
“To identify shifts in the perceived reaction function of the largest central banks, we estimate the time-varying sensitivity of short rates to economic surprises”.
“The results match previous findings that the Fed's calendar-based guidance successfully dampened the market's data sensitivity back in 2011. They also suggest that last month's tapering decision lowered rates sensitivity. In Europe, however, the effectiveness of forward guidance seems tentative”.
Key Quotes:
“And the gloss is carrying over to this year as both the Fed and the ECB recently strengthened their respective guidance. This reflects policymakers' judgment that the communication tool has been successful. But, as with other unconventional policy options, conveying this success is a challenge. How effective has forward guidance been in the US, euro area and the UK?”.
“To identify shifts in the perceived reaction function of the largest central banks, we estimate the time-varying sensitivity of short rates to economic surprises”.
“The results match previous findings that the Fed's calendar-based guidance successfully dampened the market's data sensitivity back in 2011. They also suggest that last month's tapering decision lowered rates sensitivity. In Europe, however, the effectiveness of forward guidance seems tentative”.