The ECB monetary policy strategy and the money market

This paper aims at contributing to the understanding of how the ECB conduct s monetary policy as seen from a money market perspective. More specificall y it covers two different issues. First, it looks at the 'learning period' for banks since the Eurosystem started implementing the single monetary pol icy. It shows that during the first three weeks of 1999 the narrow corridor in place during this period was effective in limiting daily volatility of the money market overnight rates. In addition, the behaviour of banks and m arket rates during this period provides evidence that learning was taking p lace. Second, it looks at how well money market participants have anticipat ed the monetary policy decisions taken by the ECB. To do so, the paper anal yses whether the announcements of monetary policy decisions to maintain or change interest rates impact on the stochastic behaviour of interest rates. Looking at the EONIA rates within the reserve maintenance periods, we find that the announcement of monetary policy decisions does not change signifi cantly the level or volatility of overnight rates. Copyright (C) 2001 John Wiley & Sons, Ltd.