Interest Rate Setting and Communication at the ECB

43 Pages Posted: 17 Jul 2020

Multiple version iconThere are 2 versions of this paper

Date Written: July, 2020


Based on ordered Probit models and twenty years of euro area data, we estimate empirical reaction functions for the ECB´s monetary policy and augment them with communication indicators. First, we find that the ECB responded to risks to price stability in line with its primary objective, and that the account of post-meeting communications about risks to price stability and to growth significantly enhances the modelling of its reaction function. Second, we detect that the ECB also responded to the evolution of the federal funds rate, thereby confirming the importance of international interest rate linkages or the global cycle that it reflects. Third, while confirming Gerlach’s (2007) finding on the relevance of M3 growth for explaining future interest rate changes, we show that this result only holds for the period before the global financial crisis.

JEL Classification: E43, E52, C22, C25

Suggested Citation

Cour-Thimann, Philippine, Interest Rate Setting and Communication at the ECB (July, 2020). ECB Working Paper No. 20202443, Available at SSRN:

Philippine Cour-Thimann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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