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Unconventional monetary policy and central bank communication: between surprise and predictability

Author

Listed:
  • Quentin Bro de Comères

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers)

  • Léonore Raguideau-Hannotin

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers)

  • Cornel Oros

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers)

  • Marc Pourroy

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers)

  • Anne-Gaël Vaubourg

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers, Axe 1 (2022-2027) : "Vulnérabilités et risques" (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers [UAR 3565] - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique)

Abstract

Using a data set of speeches over the period 2008-2021, we investigate how the communication of the European Central Bank (ECB) influences the ability of market participants to predict its monetary decisions. Focusing on the programs and instruments that are mentioned in each monetary announcements, we build three new indicators of communication intensity and communication frequency. Predictability is measured by decomposing the surprises on the variation of asset prices around monetary policy meetings into « target » and « quantitative easing » (QE) factors. Our findings reveal that communication intensity reduces the QE factor while it increases the target factor. Hence, increasing the number of programs or instruments in the same announcement induces favorable surprises as regards the unconventional dimension of ECB monetary policy while it creates an unfavorable surprise concerning the conventional component. Our results also indicate that frequency has no effect on the QE factor. This suggests that the succession of programs or instruments progressively improves financial market participants' ability to understand and predict monetary policy.

Suggested Citation

  • Quentin Bro de Comères & Léonore Raguideau-Hannotin & Cornel Oros & Marc Pourroy & Anne-Gaël Vaubourg, 2023. "Unconventional monetary policy and central bank communication: between surprise and predictability," Post-Print halshs-04703843, HAL.
    • Handle: RePEc:hal:journl:halshs-04703843
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