Anticipation and Surprises in Central Bank Interest Rate Policy: The Case of the Bundesbank

Market reaction to a change in official interest rates will depend on the extent to which the change is anticipated, and on how it is interpreted as a signal of future policy. In this paper, a technique is developed to separate the anticipated and unanticipated components of such changes, and applied to estimate the response of euro-deutsche mark interest rates to adjustments in the Bundesbank's Lombard and discount rates.