The Effects of Central Bank's Verbal Guidance: Evidence from the ECB

76 Pages Posted: 22 Sep 2017

Date Written: July 19, 2017


In this paper we propose a new indicator of central bank’s verbal guidance, which measures communications about the future based on the frequency of future verbs in monetary policy statements. We consider the press conferences of the European Central Bank as a test case. First, we analyze the main determinants of our index and estimate the unexpected component. Second, we investigate the effects of the identified change in verbal guidance on daily movements in forward money market rates between September 2007 and December 2015. Our results show that financial markets’ expectations on future short-term interest rates react to a communication shock about the future: after controlling for the standard policy rate shock and the announcement of unconventional monetary policies, the effect turns out to be negative and larger for longer horizons. This suggests that verbal guidance has proven to be an effective policy instrument for signalling an accommodative monetary policy stance.

Keywords: central bank communication, textual analysis, European Central Bank, signalling channel, unconventional monetary policy, event-study analysis

JEL Classification: E43, E44, E52, E58, E61, G14

Suggested Citation

Galardo, Maddalena and Guerrieri, Cinzia, The Effects of Central Bank's Verbal Guidance: Evidence from the ECB (July 19, 2017). Bank of Italy Temi di Discussione (Working Paper) No. 1129, Available at SSRN: or

Maddalena Galardo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Cinzia Guerrieri

LUISS Guido Carli University ( email )

LUISS Guido Carli University, Students

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