Announcement Strategies and the Information in the Term Structure: Evidence from the Duration Distribution of Target Changes

An important aspect of a central bank's operating procedure is its signalling strategy. Whereas in the US announcements of the federal-funds-rate target are the key policy signal, the signalling strategy of the Bundesbank and the ESCB rely on announcements of several official rates. Following RUDEBUSCH (1995), this paper characterises the link between announcements on the operating target and the information content of the term structure in Germany in comparison to the US case. The results show that, in contrast to the US evidence, the information content of longer-term money-market rates in Germany is considerably higher than could be expected if markets made the best possible use of the univariate stochastic characteristica of the operating target.