No. 959 - Macroeconomic surprises and financial market reactions: insights into euro-area interest rates
This paper analyses the sensitivity of euro-area risk-free interest rates and their components - future short-term interest rate expectations and the term premium - to macroeconomic surprises between 2000 and 2024. It also investigates how this sensitivity depends on uncertainty regarding future policy rates, as derived from option‑implied rate distributions.
During the period in which the ECB provided forward guidance on the future path of policy rates, the sensitivity of interest rates to macroeconomic surprises was subdued. Since the adoption, in July 2022, of a data‑dependent and meeting‑by‑meeting approach, this sensitivity has increased markedly, reaching its highest levels since 2000 for surprises originating in the US economy. This rise primarily reflects greater uncertainty about future short‑term rates.
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