ECB signals and market reactions

ECB officials have taken the view that economic fundamentals and not monetary policy has been responsible for driving long-term interest rates to record lows. In a recent note we contradicted this view and argued that central banks exert a key influence on long-term interest rates.

In the present note we provide more evidence of the key role of central banks in the determination of prices in financial markets. Previously, we analyzed interest rate developments in four countries or currency areas over almost 25 years with econometric tools. Now, we discuss intra-day developments in three euro area financial markets on two days.

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