Michael Ehrmann (Frankfurt School of Finance and Management) - The Overdelivery Premium: When Monetary Policy Decisions Exceed Market Expectations

Forskningsseminarier

Michael Ehrmann (Frankfurt School of Finance and Management) - The Overdelivery Premium: When Monetary Policy Decisions Exceed Market Expectations

Co-author Paul Hubert (Banque de France and Sciences Po- OFCE)

 
Abstract
Monetary policy effects are usually identified through surprises. We explore whether their effects differ when central banks exceed market expectations (“overdelivery”) versus fall short (“underdelivery”). We argue that these cases arise under fundamentally different conditions. As a result, they might send signals of different strength. Using panel evidence across 14 economiesandUS and euro area time-series evidence, we document that short-term interest rates respond up to ten times more to overdelivery surprises. Furthermore, they carry different informational content: overdelivery triggers macroeconomic forecast revisions consistent with central bank information effects, while un derdelivery generates revisions in line with standard monetary transmission.
 
 

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