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Communication of Monetary Policy in Unconventional Times

47 Pages Posted: 27 Sep 2017  

Günter Coenen

European Central Bank (ECB)

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

Gaetano Gaballo

Banque de France

Peter Hoffmann

European Central Bank (ECB) - Directorate General Research

Anton Nakov

European Central Bank (ECB); CEPR

Stefano Nardelli

European Central Bank (ECB)

Eric Persson

European Central Bank (ECB)

Georg Strasser

European Central Bank (ECB) - Directorate General Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 26, 2017

Abstract

Monetary policy communication is particularly important during unconventional times, because high uncertainty about the economy, the introduction of new policy tools and possible limits to the central bank’s toolkit could hamper the predictability of policy actions. We study how monetary policy communication should and has worked under such circumstances. Our main results relate to announcements of asset purchase programmes and the use of forward guidance. We show that announcements of asset purchase programmes have lowered market uncertainty, particularly when accompanied by a contextual release of implementation details such as the envisaged size of the programme. We also show that forward guidance reduces uncertainty more effectively when it is state‐contingent or when it provides guidance about a long horizon than when it is open‐ended or covers only a short horizon, and that the credibility of forward guidance is strengthened if the central bank also has embarked on an asset purchase programme.

Keywords: Central Bank Communication, Unconventional Monetary Policy, Asset Purchase Programme, Forward Guidance

JEL Classification: E43, E52, E58

Suggested Citation

Coenen, Günter and Ehrmann , Michael and Gaballo, Gaetano and Hoffmann, Peter and Nakov, Anton and Nardelli, Stefano and Persson, Eric and Strasser, Georg, Communication of Monetary Policy in Unconventional Times (September 26, 2017). CFS Working Paper, WP No. 578. Available at SSRN: https://ssrn.com/abstract=3043098

Günter Coenen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7887 (Phone)
+49 69 1344 6575 (Fax)

Michael Ehrmann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344/7327 (Phone)
+49 69 1344/6000 (Fax)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Gaetano Gaballo

Banque de France ( email )

Paris
France

Peter Hoffmann

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Anton A. Nakov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

CEPR ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Stefano Nardelli

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Eric Persson

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Georg H. Strasser

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstraße 20
Frankfurt am Main, 60314
Germany
+496913441416 (Phone)

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