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Is a word to the wise indeed enough? ECB statements and the predictability of interest rate decisions

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Author Info
David-Jan Jansen (De Nederlandsche Bank)
Jakob de Haan (Rijksuniversiteit Groningen)

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Abstract

We show that comments by euro area central bankers contain information on future ECB interest rate decisions, but that the comments mainly reflect recent developments in macroeconomic variables. Furthermore, models using only communication variables are outperformed by straightforward Taylor rule models. During the first years of the European Economic and Monetary Union, comments by ECB Executive Board members and high-level Bundesbank policy-makers were more informative than comments by national central bank presidents. We also find that differences of opinion were informative when they concerned the outlook for economic growth. Finally, our results suggest that the ECB used communication especially to signal interest rate increases

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Publisher Info
Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 37.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:37

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Related research
Keywords: central bank communication; ECB; interest rate decisions;

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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  1. Refet Gurkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," Macroeconomics 0504013, EconWPA. [Downloadable!]
    Other versions:
  2. Michael R. Pakko, 2005. "On the Information Content of Asymmetric FOMC Policy Statements: Evidence From a Taylor-Rule Perspective," Economic Inquiry, Oxford University Press, vol. 43(3), pages 558-569, July. [Downloadable!] (restricted)
    Other versions:
  3. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2004-2), pages 1-100. [Downloadable!]
    Other versions:
  4. Friedrich Heinemann & Katrin Ullrich, 2007. "Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 155-185, June. [Downloadable!]
    Other versions:
  5. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
  6. Michael Ehrmann & Marcel Fratzscher, 2005. "Communication and decision-making by central bank committees - different strategies, same effectiveness?," Working Paper Series 488, European Central Bank. [Downloadable!]
  7. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
  8. Coenen, Gunter & Levin, Andrew & Wieland, Volker, 2005. "Data uncertainty and the role of money as an information variable for monetary policy," European Economic Review, Elsevier, vol. 49(4), pages 975-1006, May. [Downloadable!] (restricted)
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  9. Donald L. Kohn & Brian P. Sack, 2003. "Central bank talk: does it matter and why?," Finance and Economics Discussion Series 2003-55, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. David-Jan Jansen & Jakob de Haan, 2006. "Look who's talking: ECB communication during the first years of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 219-228. [Downloadable!]
    Other versions:
  11. Gerlach, Stefan, 2004. "Interest Rate Setting by the ECB: Words and Deeds," CEPR Discussion Papers 4775, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Carlo Rosa & Giovanni Verga, 2005. "Is ECB Communication Effective?," CEP Discussion Papers dp0682, Centre for Economic Performance, LSE. [Downloadable!]
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