Interest Rate Setting and Communication at the ECB

43 Pages Posted: 26 Aug 2020

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2020

Abstract

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.

Suggested Citation

Cour-Thimann, Philippine and Jung, Alexander, Interest Rate Setting and Communication at the ECB (July 20, 2020). ECB Working Paper No. 2443, 2020, Available at SSRN: https://ssrn.com/abstract=3656238

Philippine Cour-Thimann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alexander Jung (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
00496913447674 (Phone)
00496913447604 (Fax)

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