Giovanni Verga

Is ECB Communication Effective

In its Monthly Bulletin of November 2002, the European Central Bank (ECB) stated that the monthly press conference held by its President represents one of its most important communication channels and that it provides a comprehensive summary of the policy relevant assessment of economic developments. After providing a glossary to translate the qualitative information of the press conferences into an ordered scale, we verify empirically whether and to what extent market expectations react to the information released by the ECB. We found that the public not only understand but also believe the signals sent by the European monetary authority.

Wages and Monetary Policy in Italy before and after the Wage Agreements

We examine the influence of the 1992 and 1993 wage agreements on the disinflation experienced in Italy through the 1990s, providing econometric estimates both for the reaction function of the Bank of Italy and for 2-digit industry wage equations. We rely on industry-level measures for the degree of indexation, and find that, after the agreements, wage setters became more forward-looking and expectations were to some extent influenced by the target rate of inflation. The relationships between wages and the other main labour market variables were not much affected by the agreements.

The Importance of the Wording of the ECB

This paper analyses the ECB communication, focusing in particular on its transparency dimension. We posit that if the ECB is transparent about its future policy decisions, then we should be able to forecast fairly well its future interest rate setting behaviour. We find that the predicting ability of the European monetary authority’s words, is similar to the one implied by market-based measures of monetary policy expectations. Moreover, the ECB’s wording provides complementary, rather than substitute, information with respect to economic and monetary variables.

The Impact of Investors in Agricultural Commodity Derivative Markets

The objective of this paper was to test whether investing activity in the futures markets of different commodities (grains, sugar, coffee, cotton, cocoa, livestock) could be identified as a source of the increasing level and volatility of agricultural commodity prices. The causal link between trading activity and market factors (returns, volatility) can be investigated using weekly data, usually derived from the Commitment of Traders Reports released by the US Commodity Futures Trading Commission (CFTC), or daily data expressed as the ratio of volume to open interest (VOIR). To increase the power of the estimation process and investigate the role of causal variables to determine the trends of all the market factors, the authors tested the estimates obtained by seemingly unrelated regression (SUR). One innovation is represented by the evaluation of the inverse relationships between market factors and causal variables. The market factors were also tested as causal variables, avoiding giving priority to only one part of the relationship according to Grangers causality. The lack of significance revealed by the Granger causality test on weekly models could be due to the inappropriate frequency of the information. The ratio of volume to open interest in futures contracts performs better than other parameters extensively adopted in the literature. The likely reason is that it depends on the daily frequency of this parameter, which provides statistical evidence of phenomena that include their effect in weekly intervals. The estimations for the daily model provide statistical evidence of a mutual relationship only between trading activity and realized volatility. No causal relationships were found for returns. The behaviour of all 12 futures markets examined is quite similar and uniform with respect to the scale of the coefficients and their temporal profile.

The Interaction between American and European IRS Interest Rates

Abstract European interest rates movements are affected by various internal and external factors. This paper studies the link between European and American short- and long-term interest rates. In particular, we consider the forward interest rates coming from euro and dollar IRS term structures. The econometric techniques employed are co-integration, Granger-causality, OLS and GMM. Our results indicate that European remote settlement forward and long-term interest rates are primarily driven by US rates and confirm that the causality acts mainly from the US to the Eurozone. This was true even during the recent periods of European Central Bank quantitative easing. These factors weaken the ECB’s ability to intervene. In fact, we found the impact of American monetary policy on long-term interest rates to be also relevant for European bonds.

The European Central Bank Quantitative Policy and Its Consistency with the Demand for Liquidity

Abstract In 2008 the European Central Bank added a new quantitative policy strategy to its traditional control of the interest rates. This new policy, sometimes called “enhanced credit support”, consists of fully satisfying the demand for liquidity of banks, with the European Central Bank deciding only the timing and characteristics of its interventions. This study analyses the market conditions in which these measures have been taken and their consistency with the demand for liquidity by the banking system. Measures in favour of the sovereign debt of PIIGS countries are also considered.