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CEP Discussion Paper
The Importance of the Wording of the ECB
Carlo Rosa and Giovanni Verga
June 2005
Paper No' CEPDP0694:
Full Paper (pdf)

JEL Classification: E43; E52; E58; G14

Tags: ecb communication; transparency; monetary policy forecast; empirical reaction function; euribor rate curve

This paper analyses 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 behaviour. 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.