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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

Listed author(s):
  • Jan-Egbert Sturm
  • Jakob Haan

    ()

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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Article provided by Springer & Institut für Weltwirtschaft (Kiel Institute for the World Economy) 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
DOI: 10.1007/s10290-010-0076-4
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  1. Stephan Sauer & Jan-Egbert Sturm, 2007. "Using Taylor Rules to Understand European Central Bank Monetary Policy," German Economic Review, Verein für Socialpolitik, vol. 8, pages 375-398, 08.
  2. Thanaset Chevapatrakul & Tae-Hwan Kim & Paul Mizen, 2007. "Forecasting Changes in UK Interest Rates," Discussion Paper Series 2007_26, Department of Economics, Loughborough University, revised Nov 2007.
  3. Claus Brand & Daniel Buncic & Jarkko Turunen, 2008. "The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve," Discussion Papers 2008-11, School of Economics, The University of New South Wales.
  4. Michael Ehrmann & Marcel Fratzscher, 2009. "Purdah-On the Rationale for Central Bank Silence around Policy Meetings," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 517-528, 03.
  5. Ullrich, Katrin, 2007. "Inflation Expectations of Experts and ECB Communication," ZEW Discussion Papers 07-054, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. 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," DNB Working Papers 170, Netherlands Central Bank, Research Department.
  7. Boero, Gianna & Smith, Jeremy & Wallis, Kenneth F., 2011. "Scoring rules and survey density forecasts," International Journal of Forecasting, Elsevier, vol. 27(2), pages 379-393, April.
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  9. Christina Gerberding & Franz Seitz & Andreas Worms, 2005. "How the Bundesbank really conducted monetary policy," Computing in Economics and Finance 2005 60, Society for Computational Economics.
  10. Walsh, Carl E., 2004. "Implications of a Changing Economic Structure for the Strategy of Monetary Policy," Santa Cruz Department of Economics, Working Paper Series qt84g1q1g6, Department of Economics, UC Santa Cruz.
  11. Helge Berger & Jakob de Haan & Jan‐Egbert Sturm, 2011. "Does money matter in the ECB strategy? New evidence based on ECB communication," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(1), pages 16-31, 01.
  12. Jakob Haan, 2008. "The effect of ECB communication on interest rates: An assessment," The Review of International Organizations, Springer, vol. 3(4), pages 375-398, December.
  13. 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.
  14. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series 2001-02, Federal Reserve Bank of San Francisco.
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    • William Poole, 2001. "Expectations," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 1-10.
  17. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
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  22. repec:pri:cepsud:161blinder is not listed on IDEAS
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  24. 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.
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