Predictability of Monetary Policy Surprises and Euro Area Macroeconomic Dynamics 

Working paper 850
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Published: 04 December 2025

By: David Worms

I document that high-frequency euro area monetary policy surprises – measured as changes in risk-free rates around the Eurosystem‘s policy announcements – are not exogenous to information regarding macroeconomic news and financial market developments that pre-date the announcements. More specifically, around 20% of the variation of surprises can be explained by pre-dated information. I show that the violation of the exogeneity of conventional surprise measures introduces a considerable bias into estimates on the effects of monetary policy on euro area macroeconomic outcomes.

Keywords: High-Frequency Identification; Macro News; Monetary Policy
JEL codes E43; E52; E58

Working paper no. 850

850 - Predictability of Monetary Policy Surprises and Euro Area Macroeconomic Dynamics

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Research highlights:

  • Based on past macroeconomic news and financial market developments, I examine the exogeneity of euro area monetary policy surprises.
  • I find that pre-dated public signals explain 15-20% of the variation in risk-free rate changes around ECB announcements.
  • This correlation entails a considerable bias in the estimated real effects of monetary policy, giving rise to puzzling macroeconomic reactions.
  • Empirical assessments of the macroeconomic effects of monetary policy based on high-frequency surprises need to ensure the exogeneity of the policy measure.

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