The Impact of ECB Communication on Financial Market Expectations

Michael Lamla and Sarah M. Rupprecht
Authors registered in the RePEc Author Service: Sarah Marit Lein

No 06-135, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: This paper analyzes European financial markets' comprehension and interpretation of ECB communication signals. By applying a novel indicator developed by Berger et al. (2006), that quantifies the contents of the ECB's introductory statements, we find that communication affects the term structure of interest rates in the medium run over a horizon between five months to one year. Our results suggest that financial market agents expect the ECB to prepare them for a change in interest rates well in advance. However, judging upon the dynamics of the response, the exact timing of a decision is less foreseeable. Disentangling the effects of ECB statements on prices, the real and the monetary sector, we provide evidence that especially the ECB's interpretation and forecasts of price developments represent important news to financial market agents.

Keywords: Central Bank Communication; Expectations; Term Structure of Interest Rates; Yield Curve; ECB (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:06-135

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