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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.

Suggested Citation

  • David-Jan Jansen & Jakob De Haan, 2009. "Has ECB communication been helpful in predicting interest rate decisions? An evaluation of the early years of the Economic and Monetary Union," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 1995-2003.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:16:p:1995-2003
    DOI: 10.1080/00036840802167384
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    References listed on IDEAS

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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. Paul Hubert & Fabien Labondance, 2016. "Central Bank Sentiment and Policy Expectations," Sciences Po publications 2016-29, Sciences Po.
    3. Paul Hubert & Fabien Labondance, 2016. "The Effect of ECB Forward Guidance on Policy Expectations," Working Papers hal-01394821, HAL.
    4. Hayo, Bernd & Neuenkirch, Matthias, 2015. "Central bank communication in the financial crisis: Evidence from a survey of financial market participants," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 166-181.
    5. Carlo Rosa, 2009. "Forecasting the Direction of Policy Rate Changes: The Importance of ECB Words," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 38(1-2), pages 39-66, February.
    6. Aleksandra Halka, 2016. "How the central bank’s reaction function in small open economies evolved during the crisis," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 301-318.
    7. Paul Hubert, 2015. "ECB Projections as a Tool for Understanding Policy Decisions," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 34(7), pages 574-587, November.
    8. repec:fce:doctra:13-04 is not listed on IDEAS
    9. M.H. Middeldorp, 2011. "FOMC Communication Policy and the Accuracy of Fed Funds Futures," Working Papers 11-13, Utrecht School of Economics.
    10. Domenico Lombardi & Pierre L. Siklos & Samantha St. Amand, 2017. "Government bond yields at the effective lower bound: International evidence," CAMA Working Papers 2017-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    11. Bernd Hayo & Matthias Neuenkirch, 2016. "Central Banks' Predictability: An Assessment by Financial Market Participants," Research Papers in Economics 2016-02, University of Trier, Department of Economics.
    12. repec:eee:jimfin:v:79:y:2017:i:c:p:136-156 is not listed on IDEAS
    13. Jung, Alexander, 2016. "Have monetary data releases helped markets to predict the interest rate decisions of the European Central Bank?," Working Paper Series 1926, European Central Bank.
    14. 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).
    15. Hamza Bennani & Matthias Neuenkirch, 2017. "The (home) bias of European central bankers: new evidence based on speeches," Applied Economics, Taylor & Francis Journals, vol. 49(11), pages 1114-1131, March.
    16. Hayo, Bernd & Neuenkirch, Matthias, 2015. "Self-monitoring or reliance on media reporting: How do financial market participants process central bank news?," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 27-37.
    17. 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.
    18. repec:fau:fauart:v:68:y:2018:i:1:p:2-17 is not listed on IDEAS
    19. Paul Hubert, 2014. "Disentangling qualitative and quantitative central bank influence," Sciences Po publications 2014-23, Sciences Po.
    20. Aleš Bulíř & Martin Čihák & Kateřina Šmídková, 2013. "Writing Clearly: The ECB 's Monetary Policy Communication," German Economic Review, Verein für Socialpolitik, vol. 14(1), pages 50-72, February.
    21. M. Middeldorp, 2011. "Central Bank Transparency, the Accuracy of Professional Forecasts, and Interest Rate Volatility," Working Papers 11-12, Utrecht School of Economics.
    22. 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.
    23. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski, Economic Research Department.
    24. Paul Hubert & Fabien Labondance, 2016. "Central Bank Sentiment and Policy Expectations," Sciences Po publications 2016-29, Sciences Po.

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