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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.

Suggested Citation

  • 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.
  • Handle: RePEc:ses:arsjes:2007-ii-3
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    More about this item

    Keywords

    Taylor rule; wording; central bank communication;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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