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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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Author Info
Jan-Egbert Sturm () (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
Jakob de Haan () (Faculty of Economics and Business, University of Groningen, The Netherlands)

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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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Publisher Info
Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 09-236.

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Length: 26 pages
Date of creation: Aug 2009
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Handle: RePEc:kof:wpskof:09-236

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Related research
Keywords: ECB; central bank; communication; Taylor rule;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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