The Effect of ECB Forward Guidance on the Term Structure of Interest Rates

This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of interest rates. We estimate the static and dynamic impacts of forward guidance on overnight indexed swaps (OIS) rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements have lowered the term structure of private short-term interest rates at most maturities, even after controlling for the macroeconomic information published by the ECB. The effect is stronger on longer maturities and persistent.