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Title: Central Bank communication : the case of the European Central Bank
Author: Rosa, Carlo
Awarding Body: London School of Economics and Political Science (University of London)
Current Institution: London School of Economics and Political Science (University of London)
Date of Award: 2007
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Following the opening chapter, which surveys existing literature on the transparency of central bank communication, the remaining chapters each address a simple question to better understand central bank communication, and its effects on financial markets using the European Central Bank (ECB) as a case study. Specifically: o How informative is ECB communication. Chapter 2 provides a glossary that translates explicitly the qualitative information of ECB President monthly press conferences into an ordered scale. We show that the predictive ability of these statements is similar to market-based measures of monetary policy expectations. Moreover, we find that ECB words provide complementary information to macroeconomic variables. o Is it possible to measure objectively qualitative statements. Chapter 3 uses Alceste, textual-content analysis software, to categorize each ECB announcement. We find that these categories explain the volatility of financial market expectations of future monetary policy, but are not statistically helpful in predicting future policy actions. o Is the ECB transparent about its monetary policy framework. Chapter 4 proposes an indirect test of transparency. By looking at ECB explanations of its monetary policy decisions we identify new measures of euro area economic activity and price stability. Then, we use these macroeconomic variables to estimate an ECB-specific empirical reaction function, which better forecasts its future actions compared to standard Taylor-type rules. o Do financial intermediaries understand and believe ECB statements. The final chapter shows that innovations in market expectations about future monetary policy can be explained by unexpected ECB announcements. Hence, we conclude that even if the ECB is a relatively young multinational financial institution, it has already acquired a reputation for telling the truth. Moreover, in order to describe properly its monetary policy we need two dimensions: both the current policy rate and its planned future path.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available