From Forward Guidance to Data Dependence: Temporality and Complexity in ECB Communication After the Pandemic

David Byrne, Robert Goodhead, Michael McMahon, Matthew Naylor and Conor Parle
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David Byrne: Central Bank of Ireland
Robert Goodhead: Central Bank of Ireland
Michael McMahon: Central Bank of Ireland
Matthew Naylor: Central Bank of Ireland
Conor Parle: Central Bank of Ireland

No 2/EL/25, Economic Letters from Central Bank of Ireland

Abstract: The ECB’s communication strategy has changed in recent years, driven first by reforms from the 2021 Strategy Review and then by the post-pandemic inflation surge. Its communication has shifted rapidly from forward guidance to giving detailed information on its reaction function and its evaluation of data. Focusing on the Monetary Policy Statement, which is delivered at ECB press conferences, we examine these changes through the dimensions of temporal orientation and textual complexity. We find that the reforms led communication to be less semantically complex and to have fewer references to the past, reflecting reduced emphasis on evaluating data. However, as inflation rose and the ECB became “data-dependent”, its discussions of past data became more detailed again. While communication remained less semantically complex, it became more conceptually complex. This suggests a trade-off: giving more information on data and the reaction function may result in more conceptually complex communication.

Date: 2025-04
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