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Central Bank Communication and the Perception of Monetary Policy by Financial Market Experts

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  • SANDRA SCHMIDT
  • DIETER NAUTZ

Abstract

This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of individual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's interest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis. --

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2012.00489.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 44 (2012)
Issue (Month): (03)
Pages: 323-340

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Handle: RePEc:mcb:jmoncb:v:44:y:2012:i::p:323-340

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Lars winkelmann & Markus Bibinger & Tobias Linzert, 2013. "ECB monetary policy surprises: identification through cojumps in interest rates," SFB 649 Discussion Papers SFB649DP2013-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Winkelmann, Lars & Bibinger, Markus & Linzert, Tobias, 2013. "ECB monetary policy surprises: identification through cojumps in interest rates," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79721, Verein für Socialpolitik / German Economic Association.
  3. Lang, Gunnar, 2012. "Lessons of the financial crisis for the attractiveness of European financial centers," ZEW Discussion Papers 12-080, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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