Does Central Bank Communication Really Lead to Better Forecasts of Policy Decisions? New Evidence Based on a Taylor Rule Model for the ECB

CESifo Working Paper Series No. 2760

KOF Working Papers/KOF Swiss Economic Institute, ETH Zurich Working Paper No. 236

26 Pages Posted: 23 Aug 2009

See all articles by Jan-Egbert Sturm

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 1, 2009

Abstract

Nowadays, it is widely believed that greater disclosure and clarity over policy may lead to greater predictability of central bank actions. We examine whether communication by the European Central Bank (ECB) adds information compared to the information provided by a Taylor rule model in which real time expected inflation and output are used. We use five indicators of ECB communication that are all based on the ECB President’s introductory statement at the press conference following an ECB policy meeting. Our results suggest that even though the indicators are sometimes quite different from one another, they add information that helps predict the next policy decision of the ECB. Furthermore, also when the interbank rate is included in our Taylor rule model, the ECB communication indicators remain significant.

Keywords: ECB, central bank, communication, Taylor rule

JEL Classification: E52, E53, E30

Suggested Citation

Sturm, Jan-Egbert and de Haan, Jakob, Does Central Bank Communication Really Lead to Better Forecasts of Policy Decisions? New Evidence Based on a Taylor Rule Model for the ECB (August 1, 2009). KOF Working Papers/KOF Swiss Economic Institute, ETH Zurich Working Paper No. 236. Available at SSRN: https://ssrn.com/abstract=1458871

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

Jakob de Haan (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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