The Importance of the Wording of the ECB

CEP Discussion Paper No. 0694

34 Pages Posted: 28 Jun 2005

See all articles by Carlo Rosa

Carlo Rosa

Federal Reserve Banks - Federal Reserve Bank of New York

Giovanni Verga

Università degli Studi di Parma

Date Written: May 2005

Abstract

This paper analyzes the ECB communication, focusing in particular on its transparency dimension. We posit that if the ECB is transparent about its future policy decisions, then we should be able to forecast fairly well its future interest rate setting behavior. We find that the predicting ability of the European monetary authority's words is similar to the one implied by market-based measures of monetary policy expectations. Moreover, the ECB's wording provides complementary, rather than substitute, information with respect to economic and monetary variables.

Keywords: ECB communication, transparency, monetary policy forecast, empirical reaction function, Euribor rate curve

JEL Classification: E43, E52, E58, G14

Suggested Citation

Rosa, Carlo and Verga, Giovanni, The Importance of the Wording of the ECB (May 2005). CEP Discussion Paper No. 0694. Available at SSRN: https://ssrn.com/abstract=752844 or http://dx.doi.org/10.2139/ssrn.752844

Carlo Rosa

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

Giovanni Verga (Contact Author)

Università degli Studi di Parma ( email )

Via Amendola 10
Parma, 43100
Italy

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