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Has ECB communication been helpful in predicting interest rate decisions? An evaluation of the early years of the Economic and Monetary Union

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  • David-Jan Jansen
  • Jakob De Haan

Abstract

We examine the usefulness of communication by the European Central Bank for predicting its policy decisions during the early years of the European Economic and Monetary Union. Using ordered probit models based on the Taylor rule, we find that statements on the main refinancing rate and future inflation are significantly related to interest rate decisions. At the same time, an out-of-sample evaluation shows that communication-based models do not outperform models based on macroeconomic data in predicting decisions. Both types of models have difficulty in predicting changes in the main refinancing rate.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840802167384
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 16 ()
Pages: 1995-2003

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Handle: RePEc:taf:applec:v:41:y:2009:i:16:p:1995-2003

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Web page: http://www.tandfonline.com/RAEC20

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Cited by:
  1. Jakob de Haan & David-Jan Jansen, 2009. "The communication policy of the European Central Bank: An overview of the first decade," DNB Working Papers 212, Netherlands Central Bank, Research Department.
  2. Menno Middeldorp, 2011. "Central bank transparency, the accuracy of professional forecasts, and interest rate volatility," Staff Reports 496, Federal Reserve Bank of New York.
  3. Fender, Ingo & Hayo, Bernd & Neuenkirch, Matthias, 2012. "Daily pricing of emerging market sovereign CDS before and during the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2786-2794.
  4. repec:fce:doctra:13-04 is not listed on IDEAS
  5. Menno Middeldorp, 2011. "FOMC communication policy and the accuracy of Fed Funds futures," Staff Reports 491, Federal Reserve Bank of New York.
  6. Hayo, Bernd & Neuenkirch, Matthias, 2010. "Do Federal Reserve communications help predict federal funds target rate decisions?," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1014-1024, December.
  7. Bernd Hayo & Matthias Neuenkirch, 2014. "Central Bank Communication in the Financial Crisis: Evidence from a Survey of Financial Market Participants," MAGKS Papers on Economics 201404, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  8. Paul Hubert, 2013. "ECB projections as a tool for understanding policy decisions," Documents de Travail de l'OFCE 2013-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  9. Bernd Hayo & Florian Neumeier & Matthias Uhl, 2014. "Topics in Fiscal Policy: Evidence from a Representative Survey of the German Population," MAGKS Papers on Economics 201412, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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