Does Central Bank Communication Signal Future Monetary Policy in a (post)-Crisis Era? The Case of the ECB (original) (raw)
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Does central bank communication signal future monetary policy? The case of the ECB
RePEc: Research Papers in Economics, 2019
We examine the European Central Bank's ad-hoc communication and explore how it informs future monetary policy decisions. Using the rich dataset of the intermeeting verbal communication among the members of the European Central Bank's Governing Council between 2008 and 2014, we construct a measure of communication assessing its inclination towards easing, tightening or maintaining the monetary policy stance. We find that this measure provides useful additional information about future monetary policy decisions, even when we control for market-based interest rate expectations and lagged decisions. Our results also suggest that, in particular, communication shortly before monetary policy meetings, related to unconventional measures and/or by the ECB President explain the future ECB rate changes well. Overall, these results point to the importance of transparency in understanding the future course of monetary policy.
Clear, consistent and engaging: ECB monetary policy communication in a changing world
ECB Occasional Paper No. 274, 2021
This paper, produced by the Eurosystem Workstream on Monetary Policy Communication, examines the importance of central bank communication in ensuring the effectiveness of monetary policy and in underpinning the credibility, accountability and legitimacy of independent central banks. It documents how communication has become a monetary policy tool in itself; one example of this being forward guidance, given its impact on inflation expectations, economic behaviour and inflation. The paper explains why and how consistent, clear and effective communication to expert and non-expert audiences is essential in an environment of an ever-increasing need by central banks to reach these audiences. Central banks must also meet the demand for more understandable information about policies and tools, while at the same time overcoming the challenge posed by the wider public’s rational inattention. Since the European Central Bank was established, the communications landscape has changed dramatically...
Monetary Policy Communication: Perspectives from Former Policy Makers at the ECB
SSRN Electronic Journal, 2021
This paper reports the results of a survey of former members of the Governing Council of the European Central Bank, which sought their views on monetary policy communication practices, the related challenges and the road ahead. Pronounced differences across the respondent groups are rare, suggesting that there is broad consensus on the various issues. Respondents view enhancing credibility and trust as the most important objective of central bank communication. They judge communication with financial markets and experts as extremely important and adequate, but see substantial room for improvement in the communication with the general public. The central bank objective is widely seen as the most important topic for monetary policy communication, and several respondents perceived a need for clarification of the ECB’s inflation aim, citing the ambiguity of the “below, but close to, 2%” formulation that was in place at the time of the survey. JEL Codes: E52, E58.
Central bank communication and monetary policy: A survey of theory and evidence
2008
Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication --mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. However, the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy. model could be closed by appending a central bank reaction function (e.g., a "Taylor rule"):
What do central banks talk about? A European perspective on central bank communication
2021
In this paper, we apply a structural topic model (STM) to analyze over 7,000 speeches delivered by European central bankers and ECB staff over the period from 1996 to 2019. Our findings indicate that neither the size of an economy nor its monetary policy regime appear to be related to how frequently a country’s central bank communicates through speeches with the public. We moreover find that the following four topics dominate in central bank speeches: (1) European integration, (2) monetary policy and price stability, (3) f inancial stability, and (4) “outside the box” content, subsuming rhetoric on issues beyond central banks’ core responsibilities. While coverage of monetary policy topics has been stable over time, European integration has been discussed less in central bank speeches since the early days of the euro and at least up until the Brexit referendum. Speeches on financial stability surged in the aftermath of the global financial crisis. When examining the regional distrib...
Quest for central bank communication: Does it pay to be “talkative”?
European Journal of Political Economy, 2007
On the basis of a unique database of policy makers' verbal comments, we find that central bank "talk" in the Czech Republic, Hungary, and Poland influences behavior of financial markets. This effect, however, differs among the countries. The CEC3 central banks' communication strategies are far from uniform. The CNB does a better job than the other central banks in matching words with deeds. Communication affects monetary policy predictability, but results depend on the committee structure and communication style. Finally, we provide evidence that pursuance of too many targets leads to inconsistencies in central bank communication. . To our knowledge, no research has been done on the effects of central bank communication on asset prices in CEC3 countries.
2008
This paper examines and compares the communication strategies of the Federal Reserve and the European Central Bank, and their effectiveness. First, we do a comparative study exercise. We find that on monetary policy committee meeting days both the ECB and the Fed can move market rates using either monetary policy or news shocks. However, the response of the long-end of the American term structure to the surprise component of Fed's statements is significantly larger than the reaction of European long-term yields to ECB's announcements. This result is intimately related to the higher transparency of U.S. Fed statements compared to ECB announcements rather than to the different institutional mandate of the two central banks. Second, we investigate the cross-effects, i.e. the Fed's ability to move European interest rates and the corresponding ECB's capacity to move American rates. We find that the Feb has been more able to move the European interest rates of all maturities than the ECB to move American rates. This finding is tied to the predominance of dollar fixed income assets rather than to an attempt of the ECB to mimic the Fed.
Central Bank Communication: Different Strategies, Same Effectiveness?
The paper assesses the communication strategies of the Federal Reserve, the Bank of England and the European Central Bank and their effectiveness. Based on the content, timing and consistency of statements by the policy committees and its individual members as well as the voting behaviour, we argue that the three central banks are following fundamentally different communication strategies, with the Federal Reserve pursuing an approach that stresses the individual accountability of FOMC members, whereas the European Central Bank has been pursuing a more collegiate, and the Bank of England an intermediate approach. The central finding is that the predictability of policy decisions and the responsiveness of financial markets are equally good for the Federal Reserve and the ECB, though there are important differences in the type of communication that financial markets react to. This suggests that there may not be a single best approach to central bank communication and that the most effective way of communication depends on the circumstances and the environment a central bank operates in.
Writing Clearly: The ECB's Monetary Policy Communication
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Abstract The article presents a novel methodology for measuring the clarity of central bank communication using content analysis, illustrating the methodology with the case of the European Central Bank (ECB). The analysis identifies the ECB's written communication as clear in about 85–95% of instances, which is comparable with, or better than, similar results available for other central banks.
Writing Clearly: ECB’ s Monetary Policy Communication
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The paper presents a methodology for measuring the clarity of central bank communication, illustrating it with the case of the European Central Bank (ECB) in 1999-2007. The analysis identifies the ECB's written communication as clear about 95 percent of instances, which is comparable to, or even better than, other central banks for which a similar analysis is available. We also find that the additional information contained in the ECB's Monthly Bulletins helps to improve communication clarity compared to ECB's press releases. In ...