IDEAS home Printed from https://ideas.repec.org/p/cqe/wpaper/8519.html
   My bibliography  Save this paper

The ECB’s monetary pillar after the financial crisis

Author

Listed:
  • T. Philipp Dybowski
  • Bernd Kempa

Abstract

We apply a structural topic model (STM) to analyze European Central Bank (ECB) communication regarding the monetary pillar of its monetary policy strategy. We do so by quantifying the transcripts of the ECB Presidents introductory statements at the press conferences that accompany the regular meetings of the ECB Governing Council. Our evidence shows that, within its monetary pillar, the ECB has gradually shifted its focus away from a genuine monetary analysis towards monitoring the stability of the European financial system. We go on to augment a standard Taylor rule by quantitative indicators obtained from the STM to assess whether the monetary pillar in general, and the shift in focus in particular, has had a measurable impact on the ECBs monetary policy stance. We find weak evidence that the monetary analysis has had a bearing on the ECBs interest rate setting in the early years of the ECB's existence, but this influence completely disappears in the latter years of the sample. We also find that after the financial crisis, the monetary policy response to its financial sentiment communication has been accommodative rather than "leaning against the wind".

Suggested Citation

  • T. Philipp Dybowski & Bernd Kempa, 2019. "The ECB’s monetary pillar after the financial crisis," CQE Working Papers 8519, Center for Quantitative Economics (CQE), University of Muenster.
  • Handle: RePEc:cqe:wpaper:8519
    as

    Download full text from publisher

    File URL: https://www.wiwi.uni-muenster.de/cqe/sites/cqe/files/CQE_Paper/cqe_wp_85_2019.pdf
    File Function: Version of July 2019
    Download Restriction: no

    References listed on IDEAS

    as
    1. Georgios Psaroudakis, 2018. "The Scope for Financial Stability Considerations in the Fulfilment of the Mandate of the ECB/Eurosystem," Journal of Financial Regulation, Oxford University Press, vol. 4(1), pages 119-156.
    2. Beckmann, Joscha & Belke, Ansgar & Dreger, Christian, 2017. "The relevance of international spillovers and asymmetric effects in the Taylor rule," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 162-170.
    3. Fligstein, Neil & Brundage, Jonah S & Schultz, Michael, 2014. "Why the Federal Reserve Failed to See the Financial Crisis of 2008: The Role of “Macroeconomics” as a Sense making and Cultural Frame," Institute for Research on Labor and Employment, Working Paper Series qt97k6t78z, Institute of Industrial Relations, UC Berkeley.
    4. George A. Kahn, 2012. "The Taylor Rule and the Practice of Central Banking," Book Chapters, in: Evan F. Koenig & Robert Leeson & George A. Kahn (ed.),The Taylor Rule and the Transformation of Monetary Policy, chapter 3, Hoover Institution, Stanford University.
    5. Stephan Sauer & Jan‐Egbert Sturm, 2007. "Using Taylor Rules to Understand European Central Bank Monetary Policy," German Economic Review, Verein für Socialpolitik, vol. 8(3), pages 375-398, August.
    6. Benjamin Born & Michael Ehrmann & Marcel Fratzscher, 2014. "Central Bank Communication on Financial Stability," Economic Journal, Royal Economic Society, vol. 124(577), pages 701-734, June.
    7. Brüggemann, Ralf & Riedel, Jana, 2011. "Nonlinear interest rate reaction functions for the UK," Economic Modelling, Elsevier, vol. 28(3), pages 1174-1185, May.
    8. Bailey, Andrew & Schonhardt-Bailey, Cheryl, 2008. "Does Deliberation Matter in FOMC Monetary Policymaking? The Volcker Revolution of 1979," Political Analysis, Cambridge University Press, vol. 16(4), pages 404-427.
    9. Grimmer, Justin & Stewart, Brandon M., 2013. "Text as Data: The Promise and Pitfalls of Automatic Content Analysis Methods for Political Texts," Political Analysis, Cambridge University Press, vol. 21(3), pages 267-297, July.
    10. Bauer, Christian & Neuenkirch, Matthias, 2017. "Forecast uncertainty and the Taylor rule," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 99-116.
    11. Michael Woodford, 2008. "How Important Is Money in the Conduct of Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1561-1598, December.
    12. Frank Smets, 2014. "Financial Stability and Monetary Policy: How Closely Interlinked?," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 263-300, June.
    13. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    14. 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.
    15. Stefan Gerlach, 2007. "Interest Rate Setting by the ECB, 1999-2006: Words and Deeds," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 1-46, September.
    16. Stefan Gerlach, 2004. "The two pillars of the European Central Bank," Economic Policy, CEPR;CES;MSH, vol. 19(40), pages 389-439, October.
    17. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q IV), pages 17-51.
    18. Ricardo Correa & Keshav Garud & Juan M. Londono & Nathan Mislang, 2017. "Sentiment in Central Banks' Financial Stability Reports," International Finance Discussion Papers 1203, Board of Governors of the Federal Reserve System (U.S.), revised 21 Mar 2017.
    19. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    20. 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.
    21. Margaret E. Roberts & Brandon M. Stewart & Edoardo M. Airoldi, 2016. "A Model of Text for Experimentation in the Social Sciences," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 111(515), pages 988-1003, July.
    22. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    ECB; monetary policy; central bank communication; topic models;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cqe:wpaper:8519. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Susanne Deckwitz). General contact details of provider: http://edirc.repec.org/data/cqmuede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.