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Does central bank communication really lead to better forecasts of policy decisions? New evidence based on a Taylor rule model for the ECB

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  • Jan-Egbert Sturm
  • Jakob Haan

    ()

Abstract

Nowadays, it is widely believed that greater disclosure and clarity over policy may lead to greater predictability of central bank actions. We examine whether communication by the European Central Bank (ECB) adds information compared to the information provided by a Taylor rule model in which real time expected inflation and output are used. We use five indicators of ECB communication that are all based on the ECB President’s introductory statement at the press conference following an ECB policy meeting. Our results suggest that even though the indicators are sometimes quite different from one another, they add information that helps predict the next policy decision of the ECB. Furthermore, also when the interbank rate is included in our Taylor rule model, the ECB communication indicators remain significant.

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File URL: http://hdl.handle.net/10.1007/s10290-010-0076-4
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Bibliographic Info

Article provided by Springer in its journal Review of World Economics.

Volume (Year): 147 (2011)
Issue (Month): 1 (April)
Pages: 41-58

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Handle: RePEc:spr:weltar:v:147:y:2011:i:1:p:41-58

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Related research

Keywords: ECB; Central bank; Communication; Taylor rule; E52; E53; E3;

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  1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," NBER Working Papers 13932, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. repec:fce:doctra:13-04 is not listed on IDEAS
  2. Menno Middeldorp, 2011. "FOMC communication policy and the accuracy of Fed Funds futures," Staff Reports 491, Federal Reserve Bank of New York.
  3. Matthias Neuenkirch, 2011. "Monetary Policy Transmission in Vector Autoregressions: A New Approach Using Central Bank Communication," MAGKS Papers on Economics 201143, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Marcel Bluhm, 2011. "Investigating the Monetary Policy of Central Banks with Assessment Indicators," CFS Working Paper Series 2011/20, Center for Financial Studies.
  5. Menno Middeldorp, 2011. "Central bank transparency, the accuracy of professional forecasts, and interest rate volatility," Staff Reports 496, Federal Reserve Bank of New York.

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