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Forecasting ECB monetary policy: accuracy is (still) a matter of geography

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  • Berger, Helge
  • Ehrmann, Michael
  • Fratzscher, Marcel

Abstract

Monetary policy in the euro area is conducted within a multi-country, multi-cultural, and multi-lingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the ECB? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent.

Suggested Citation

  • Berger, Helge & Ehrmann, Michael & Fratzscher, Marcel, 2006. "Forecasting ECB monetary policy: accuracy is (still) a matter of geography," Discussion Papers 2006/11, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:200611
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    Cited by:

    1. Ralf Fendel & Michael Frenkel & Jan-Christoph Rülke, 2008. "'Ex-ante' Taylor rules - Newly discovered evidence from the G7 countries," WHU Working Paper Series - Economics Group 08-03, WHU - Otto Beisheim School of Management.
    2. Koulovatianos, Christos & Schrder, Carsten & Schmidt, Ulrich, 2009. "Nonmarket Household Time and the Cost of Children," Journal of Business & Economic Statistics, American Statistical Association, vol. 27, pages 42-51.
    3. Sandro C. Andrade & Emanuel Kohlscheen, 2010. "Pessimistic Foreign Investors and Turmoil in Emerging Markets: the case of Brazil in 2002," Working Papers Series 211, Central Bank of Brazil, Research Department.
    4. Berger, Helge & Ehrmann, Michael & Fratzscher, Marcel, 2009. "Forecasting ECB monetary policy: Accuracy is a matter of geography," European Economic Review, Elsevier, vol. 53(8), pages 1028-1041, November.
    5. Robalo Marques, Carlos & Dias, Daniel & Santos Silva, João M. C., 2006. "Measuring the importance of the uniform nonsynchronization hypothesis," Working Paper Series 606, European Central Bank.
    6. Crowe, Christopher, 2010. "Testing the transparency benefits of inflation targeting: Evidence from private sector forecasts," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 226-232, March.
    7. Menkhoff, Lukas & Schmeling, Maik, 2008. "Local information in foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1383-1406, December.
    8. Frenkel, Michael & Lis, Eliza M. & Rülke, Jan-Christoph, 2011. "Has the economic crisis of 2007-2009 changed the expectation formation process in the Euro area?," Economic Modelling, Elsevier, vol. 28(4), pages 1808-1814, July.
    9. Torben Lütje & Lukas Menkhoff, 2007. "What drives home bias? Evidence from fund managers' views," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 21-35.
    10. Fendel, Ralf & Frenkel, Michael & Rülke, Jan-Christoph, 2011. "'Ex-ante' Taylor rules - Newly discovered evidence from the G7 countries," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 224-232, June.
    11. Martin Cihak & Katerina Smídková & Ales Bulir, 2008. "Writing Clearly; ECB’s Monetary Policy Communication," IMF Working Papers 08/252, International Monetary Fund.
    12. Andrzej Torój, 2009. "Solving Forward-Looking Models of Cross-Country Adjustment within the Euro Area," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 1(3), pages 211-241, November.
    13. Jan Babecky & Jiri Podpiera, 2008. "Inflation Forecasts Errors in the Czech Republic: Evidence from a Panel of Institutions," Occasional Publications - Chapters in Edited Volumes,in: Katerina Smidkova (ed.), Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007, chapter 6, pages 77-85 Czech National Bank, Research Department.
    14. Michael R Frenkel & Jan C Rülke, 2013. "Is the ECB's monetary benchmark still alive?," Economics Bulletin, AccessEcon, vol. 33(2), pages 1204-1214.
    15. Berger, Helge & Ehrmann, Michael & Fratzscher, Marcel, 2006. "Geography or skills: What explains Fed watchers’ forecast accuracy of US monetary policy?," Working Paper Series 695, European Central Bank.
    16. M. Middeldorp, 2011. "Central Bank Transparency, the Accuracy of Professional Forecasts, and Interest Rate Volatility," Working Papers 11-12, Utrecht School of Economics.
    17. repec:ris:mfplwp:0001 is not listed on IDEAS
    18. Carol Osler & Xuhang Wang, 2012. "The Microstructure of Currency Markets," Working Papers 49, Brandeis University, Department of Economics and International Businesss School.
    19. Piccotti, Louis R., 2016. "Pricing errors and the geography of trade in the foreign exchange market," Journal of Financial Markets, Elsevier, vol. 28(C), pages 46-69.

    More about this item

    Keywords

    monetary policy; ECB; forecast; geography; history; heterogeneity; Taylor rule; learning; transmission; survey data; communication;

    JEL classification:

    • 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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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