Policy words and policy deeds: the ECB and the euro

Pierre Siklos () and Martin Bohl ()
Additional contact information
Martin Bohl : Department of Economics, Westfälische Wilhelms University Münster

No 2/2006, Research Discussion Papers from Bank of Finland

Abstract: This paper examines the role of the ECB communication activities on daily Eurodollar exchange rate and interest rates. We estimate the relationship between monetary policy and the exchange rate using a technique that explicitly recognises the joint determination of both the levels and volatilities of these variables. We also consider more traditional estimation strategies as a test of the robustness of our main results. We introduce a new indicator of ECB communications policies that focuses on what the ECB says about the future economic outlook for the euro area along five different economic dimensions. The impact of ECB communications policies is more apparent in the time series framework than in the heteroskedasticity estimator approach. Previous studies that conclude that news effects are significant at the daily frequency may have reached such a conclusion because the measurement of news was too highly aggregated. The endogeneity of the exchange rate – interest rate relationship is more apparent when the proxy for monetary policy is the euro area – US differential than when any other proxy for monetary policy is employed. Finally, interest rate changes generally have a much larger impact on exchange rate movements, and their volatility, than do ECB verbal pronouncements.

Keywords: communication policy; exchange rates; interest rates; volatility (search for similar items in EconPapers)
JEL-codes: E50 E60 F30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk, nep-mac and nep-mon
Date: 2006-04-11
View list of references View citations in EconPapers

Downloads: (external link)
http://www.bof.fi/NR/rdonlyres/D67DA629-231B-4D77- ... 5D87/0/0602netti.pdf (application/pdf)

Related works:
Working Paper: Policy Words and Policy Deeds: The ECB and the Euro (2007)
Working Paper: Policy Words and Policy Deeds: The ECB and the Euro (2006)
Journal Article: Policy words and policy deeds: the ECB and the euro (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:bofrdp:2006_002

Access Statistics for this paper

More papers in Research Discussion Papers from Bank of Finland
Address: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Contact information at EDIRC.
Series data maintained by Minna Nyman ().