tailieunhanh - The effects of monetary policy changes on market interest rates in greece: An event study approach

The operational procedures of the Bank of Greece underwent major changes during the 1990s. These shifts in operational strategy made interest rates the main tool of monetary policy for the first time in Greece. This paper examines the effects of changes in the bank’s operational interest rates on market interest rates at eight maturities and for different operational regimes. A major feature of our study is the application of the event study methodology used in finance, which has not been employed in any previous study on this subject. We find that changes in official interest rates had a significant influence on short-term and intermediate-term rates and that this relationship was affected by the changes in the bank’s operational procedure. | ELSEVIER fe International H Review of Economics M Finance International Review of Economics and Finance 15 2006 487-504 locate iref The effects of monetary policy changes on market interest rates in Greece An event study approach Asimakis Kaketsis a Nicholas Sarantis b a Deutsche Asset Management UK b Department of Economics Finance and International Business London Metropolitan University 84 Moorgate London EC2M 6SQ UK Received 20 October 2003 received in revised form 15 September 2004 accepted 29 September 2004 Available online 22 December 2004 Abstract The operational procedures of the Bank of Greece underwent major changes during the 1990s. These shifts in operational strategy made interest rates the main tool of monetary policy for the first time in Greece. This paper examines the effects of changes in the bank s operational interest rates on market interest rates at eight maturities and for different operational regimes. A major feature of our study is the application of the event study methodology used in finance which has not been employed in any previous study on this subject. We find that changes in official interest rates had a significant influence on short-term and intermediate-term rates and that this relationship was affected by the changes in the bank s operational procedure. 2004 Elsevier Inc. All rights reserved. JEL classification E52 E58 C52 Keywords Central Bank operational procedure Monetary policy Market interest rates Event study 1. Introduction Since the late 1980s we have witnessed substantial liberalisation of Greece s financial markets. Controls on cross-border capital flows have been lifted and restrictions affecting competition and price Corresponding author. Tel. 44 20 7320 1464 fax 44 20 7320 1414. E-mail address N. Sarantis . 1059-0560 - see front matter 2004 Elsevier Inc. All rights reserved. doi 488 A. Kaketsis N. Sarantis International Review of Economics and