Does Central Bank Communication Signal Future Monetary Policy in a (post)-Crisis Era? The Case of the ECB

Hamza Bennani, Nicolas Fanta, Pavel Gertler and Roman Horvath

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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 by the members of the European Central Bank's Governing Council between 2008 and 2016, we construct a measure of communication evaluating 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 related to conventional measures and/or by the ECB President explain the future ECB rate changes well. All aforementioned results hold also in the environment of the zero lower bound. Overall, these results point to the importance of transparent communication in understanding the future course of monetary policy.

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Date: 2020
Note: View the original document on HAL open archive server: https://hal.science/hal-02486315
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Published in Journal of International Money and Finance, 2020, 104

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Journal Article: Does central bank communication signal future monetary policy in a (post)-crisis era? The case of the ECB (2020)
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