Interest rate dynamics, interest rate expectations and the operational framework of central banks

Many central banks implement monetary policy by steering the interest rates at the very short end of the yield curve. Interest rate changes, which are induced by central banks at the short end of the yield curve are transmitted to longer-term maturities. The effectiveness of the transmission process to longer term interest rates can be enhanced by a transparent framework of central banks. The aim of this thesis is to explore how central banks can effectively implement monetary policy decisions at the short end of the yield curve and how they can manage interest rate expectations to facilitate the transmission process to longer-term interest rates. To this end, the thesis is divided into two parts. The first part consists of two papers, which focus on the behavior of the European Central Bank (ECB) and the Federal Reserve (Fed) in the overnight market in the euro zone and the U. S., respectively. Using a set of survey data of institutional investors, the second part of the thesis investigates how market participants assess the reaction of the ECB to macroeconomic variables and whether a more precise central bank communication has improved the perception of the survey participants.