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Does Central Bank Communication Signal Future Monetary Policy? The Case of the ECB

Author

Listed:
  • Hamza Bennani

    (Universite Paris Nanterre, 200 Avenue de la République, 92000 Nanterre, France)

  • Nicolas Fanta

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

  • Pavel Gertler

    (National Bank of Slovakia, Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic)

  • Roman Horvath

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

Abstract

We examine the European Central Bank's ad-hoc communication and explore how it informs future monetary policy decisions. Using the rich dataset of the inter-meeting verbal communication among the members of the European Central Bank's Governing Council between 2008 and 2014, we construct a measure of communication assessing its inclination towards easing, tightening or maintaining the monetary policy stance. We find that this measure provides useful additional information about future monetary policy decisions, even when we control for market-based interest rate expectations and lagged decisions. Our results also suggest that, in particular, communication shortly before monetary policy meetings, related to unconventional measures and/or by the ECB President explain the future ECB rate changes well. Overall, these results point to the importance of transparency in understanding the future course of monetary policy.

Suggested Citation

  • Hamza Bennani & Nicolas Fanta & Pavel Gertler & Roman Horvath, 2019. "Does Central Bank Communication Signal Future Monetary Policy? The Case of the ECB," Working Papers IES 2019/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2019.
    • Handle: RePEc:fau:wpaper:wp2019_12
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/6035/lang/cs
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    Cited by:

    1. Johannes Zahner, 2020. "Above, but close to two percent. Evidence on the ECB’s inflation target using text mining," MAGKS Papers on Economics 202046, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

    Central bank communication; ECB; monetary policy;
    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

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