Signalling with official interest rates: the case of the German discount and lombard rate

Abstract

A major characteristic of the operating procedure of the European Central Bank (ECB) is its reliance on standing facilities. It is intended that the official rates on those facilities also serve the function of signalling. The case of Germany, where the Bundesbank followed a similar signalling strategy, is analysed. In particular the paper investigates whether announcements of official interest rates provide information not already contained in other policy measures and whether the resulting revisions of expectations are efficient. Significant differences are found between signalling in the case of increasing and decreasing interest rates.