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Does central bank communication really lead to better forecasts of policy decisions?

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Abstract

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.

Suggested Citation

  • Jan-Egbert Sturm & Jakob de Haan, 2009. "Does central bank communication really lead to better forecasts of policy decisions?," KOF Working papers 09-236, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:09-236
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    File URL: http://dx.doi.org/10.3929/ethz-a-005888643
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    Cited by:

    1. Bluhm, Marcel, 2015. "Investigating the monetary policy of central banks with assessment indicators," European Journal of Political Economy, Elsevier, vol. 38(C), pages 181-196.
    2. Donato Masciandaro & Davide Romelli, 2016. "From Silence to Voice: Monetary Policy, Central Bank Governance and Communication," BAFFI CAREFIN Working Papers 1627, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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    Keywords

    ECB; Central bank; Communication; Taylor rule;

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