The Overdelivery Premium: When Monetary Policy Decisions Exceed Market Expectations

Abstract

Monetary policy effects are usually identified through surprises. We explore whether their effects differ when central banks exceed market expectations (“overdelivery”) versus fall short (“underdelivery”). We argue that these cases arise under fundamentally different conditions. As a result, they might send signals of different strength. Using panel evidence across 14 economies and US and euro area time-series evidence, we document that short-term interest rates respond up to ten times more to overdelivery surprises. Furthermore, they carry different informational content: overdelivery triggers macroeconomic forecast revisions consistent with central bank information effects, while underdelivery generates revisions in line with standard monetary transmission.

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