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ECB communication and its impact on financial markets

Author

Listed:
  • Klodiana Istrefi

    (BANQUE DE FRANCE)

  • Florens Odendahl

    (Banco de España)

  • Giulia Sestieri

    (BANQUE DE FRANCE)

Abstract

This paper presents the Euro Area Communication Event-Study Database (EA-CED), a new dataset that tracks financial market movements around ECB Governing Council meetings (GC) and inter-meeting communication (IMC). Covering the period from 1999 to 2024, the EA-CED contains intraday changes in euro area financial variables around the time of 304 ECB GC policy announcements and 4,400 IMC events, consisting mainly of speeches and interviews. We document several new empirical findings on the impact of IMC on financial markets. First, we show that many IMC events are associated with significant market movements, often of similar or larger magnitude than those associated with ECB policy announcements, particularly for yields at longer maturities. Significant effects are not limited to communication from the ECB’s President but extend to other members of the Governing Council. Second, the importance of IMC varies over time, peaking around tightening cycles, particularly in 2022-2023. Third, like ECB GC announcements, IMC events convey multi-dimensional information and lead to surprises regarding the path of monetary policy and the state of the economy.

Suggested Citation

  • Klodiana Istrefi & Florens Odendahl & Giulia Sestieri, 2024. "ECB communication and its impact on financial markets," Working Papers 2431, Banco de España.
    • Handle: RePEc:bde:wpaper:2431
    DOI: https://doi.org/10.53479/37792
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    References listed on IDEAS

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    2. Istrefi, Klodiana & Odendahl, Florens & Sestieri, Giulia, 2023. "Fed communication on financial stability concerns and monetary policy decisions: Revelations from speeches," Journal of Banking & Finance, Elsevier, vol. 151(C).
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    Cited by:

    1. Gnan, Phillipp & Rieder, Kilian, 2022. "The (Not So) Quiet Period: Communication by ECB Decision-makers during Monetary Policy Blackout Days," CEPR Discussion Papers 15735, C.E.P.R. Discussion Papers.
    2. Haroon Mumtaz & Jumana Saleheen & Roxane Spitznagel, 2023. "Keep it Simple: Central Bank Communication and Asset Prices," Working Papers 960, Queen Mary University of London, School of Economics and Finance.
    3. Istrefi, Klodiana & Odendahl, Florens & Sestieri, Giulia, 2023. "Fed communication on financial stability concerns and monetary policy decisions: Revelations from speeches," Journal of Banking & Finance, Elsevier, vol. 151(C).
    4. Rayane Hanifi & Klodiana Istrefi & Adrian Penalver, 2022. "Central Bank Communication of Uncertainty," Working papers 898, Banque de France.
    5. Ehrmann, Michael & Gnan, Phillipp & Rieder, Kilian, 2023. "Central bank communication by ??? The economics of public policy leaks," Working Paper Series 2846, European Central Bank.
    6. Odendahl, Florens & Pagliari, Maria Sole & Penalver, Adrian & Rossi, Barbara & Sestieri, Giulia, 2024. "Euro area monetary policy effects. Does the shape of the yield curve matter?," Journal of Monetary Economics, Elsevier, vol. 147(S).
    7. Gnan, Phillipp & Rieder, Kilian, 2023. "The (not so) quiet period: Communication by ECB decision-makers during monetary policy blackout days☆," Journal of International Money and Finance, Elsevier, vol. 130(C).
    8. Jean-Charles Bricongne & Baptiste Meunier & Raquel Caldeira, 2024. "Should Central Banks Care About Text Mining? A Literature Review," Working papers 950, Banque de France.

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    More about this item

    Keywords

    monetary policy; ECB; communication; financial markets; euro area;
    All these keywords.

    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
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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