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Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording

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  • Friedrich Heinemann
  • Katrin Ullrich

Abstract

In this analysis, the informational content of central bank rhetoric is assessed based on the experience with the ECB since 1999. We construct a wording indicator reflecting the "hawkishness" of monetary rhetorics. For the construction, we develop an objective algorithm representing a learning process of ECB observers. We then integrate this indicator into a standard Taylor-type ordered probit model for the explanation of the interest rate. We show that the wording indicator can improve the model’s fit when added to the standard explanatory variables. However, a model based solely on this indicator performs worse than the baseline.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 143 (2007)
Issue (Month): II (June)
Pages: 155-185

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Handle: RePEc:ses:arsjes:2007-ii-3

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Keywords: Taylor rule; wording; central bank communication;

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References

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