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The European Central Bank at Ten pp 119–141Cite as

The Communication Policy of the European Central Bank: An Overview of the First Decade

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Abstract

Since its inception, the European Central Bank (ECB) has regarded communication as an integral part of its monetary policy. It has communicated frequently to the public on various issues, such as its objective, its policy decisions, and the economic outlook. In doing so, the ECB has used various communication channels. For instance, the ECB extensively uses press conferences to inform the public on its decisions almost on a real-time basis. In addition, the ECB employs other communication channels, like the Monthly Bulletin, its website, as well as speeches by and interviews with prominent ECB policymakers.

The views expressed in this chapter are those of the authors and should not be attributed to De Nederlandsche Bank.

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Notes

  1. 1.

    http://www.ecb.int/press/pressconf/2006/html/is060302.en.html.

  2. 2.

    Another difference may be the asymmetry in the treatment of macroeconomic information. Market participants have a monitoring horizon biased toward short-term movements of financial markets, while the central bank analyses every kind of economic development and their short to medium-term impact on inflation and economic activity. As a consequence, market participants have a limited ability to build proper data-driven economic scenarios consistent with the central bank’s view of future inflation. Communication may help them forming a better view.

  3. 3.

    Romer and Romer (2000) provide statistical evidence that the Federal Reserve staff forecasts for output and inflation have been more accurate than private sector forecasts over the past several decades. Gamber and Smith (2009) find that the Fed’s forecast errors remain significantly smaller than the private sector’s but the gap has narrowed considerable since the mid-1980s, especially after 1994.

  4. 4.

    For instance, Svensson (2006) argues that the assumptions underlying the Morris and Shin result are not likely to hold in practice. See also Gosselin, Lotz, and Wyplosz (2007).

  5. 5.

    Available at http://www.ecb.int/press/pressconf/2007/html/is070802.en.html.

  6. 6.

    Available at http://www.ecb.int/press/pressconf/2007/html/is070906.en.html.

  7. 7.

    As Bernanke and Boivin (2003) point out, most empirical analyses of monetary policy have been confined to frameworks in which the central bank is implicitly assumed to exploit only a limited amount of information, like in the Taylor-rule model. In practice, the central banks’ approach to data analysis typically mixes the use of large macro-econometric models, smaller statistical models, heuristic and judgmental analyses, and informal weighting of information from diverse sources. One way of interpreting central bank communication may be that it summarizes the central bank’s assessment of all the information it employs. In that case, models using central bank communication should outperform those that rely only on a limited number of macro variables.

  8. 8.

    The sample period is 6 May 1999 to 2 May 2002. This period is interesting as both the ECB and financial markets had to learn how to deal with communication by a newly created international organisation. Further details are given in Jansen and De Haan (2006).

  9. 9.

    These expectations are taken from the Reuters poll of forecasters. Before each ECB interest rate decision, Reuters polls key economists on their views on the main refinancing rate after the upcoming meeting. The use of these data instead of market-based expectations allows us to examine the impact of communication dispersion on market uncertainty as reflected in the dispersion of the views of the forecasters.

  10. 10.

    We also estimated specifications with a linear trend as, over the years, the ECB may have become more predictable. This did not affect the results.

  11. 11.

    In this line of research, communication is quantified in order to assess both the direction and magnitude of its effects on asset prices. Communications must be classified according to their content and/or likely intention, and then coded on a numerical scale. Negative (positive) values are assigned to communications that are perceived as dovish (hawkish), and zero to those that appear to be neutral. Whereas some researchers restrict the coding to directional indications by using a scale between −1 and +1 (e.g., Jansen & De Haan 2005; Ehrmann & Fratzscher 2007a), others assign a finer grid that is at least suggestive of magnitude (Berger, De Haan, & Sturm, 2010; Rosa & Verga 2007, 2008, 2008; Heinemann & Ullrich 2007; Musard-Gies 2006), e.g. by coding statements on a scale from −2 to +2.

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Authors and Affiliations

  1. Research Department, De Nederlandsche Bank, PO Box 98, 1000 AB, Amsterdam, The Netherlands

    Jakob de Haan & David-Jan Jansen

  2. University of Groningen, Groningen, The Netherlands

    Jakob de Haan

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  1. Jakob de Haan
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  2. David-Jan Jansen
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Correspondence to Jakob de Haan .

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Editors and Affiliations

  1. , Research, De Nederlandsche Bank, Amsterdam, 1000 AB, Netherlands

    Jakob Haan

  2. , European Department, International Monetary Fund, 19th Street NW 700, Washington, DC, 20431, USA

    Helge Berger

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de Haan, J., Jansen, DJ. (2010). The Communication Policy of the European Central Bank: An Overview of the First Decade. In: Haan, J., Berger, H. (eds) The European Central Bank at Ten. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14237-6_5

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