The Impact of ECB Communication on Financial Market Expectations

KOF Working Paper Series No. 135

28 Pages Posted: 10 May 2006

See all articles by Michael J. Lamla

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute; University of Essex

Sarah M. Lein

Swiss National Bank; University of Basel; ETH Zürich - KOF Swiss Economic Institute

Date Written: April 2006

Abstract

This paper analyzes European financial markets' comprehension and interpretation of ECB communication signals. By applying a novel indicator developed by Berger et al. (2006), that quantifies the contents of the ECB's introductory statements, we find that communication affects the term structure of interest rates in the medium run over a horizon between five months to one year. Our results suggest that financial market agents expect the ECB to prepare them for a change in interest rates well in advance. However, judging upon the dynamics of the response, the exact timing of a decision is less foreseeable. Disentangling the effects of ECB statements on prices, the real and the monetary sector, we provide evidence that especially the ECB's interpretation and forecasts of price developments represent important news to financial market agents.

Keywords: Central Bank Communication,Expectations, Term Structure of Interest Rates, Yield Curve, ECB

JEL Classification: E43, E44, E58

Suggested Citation

Lamla, Michael J. and Lamla, Michael J. and Lein, Sarah M. and Lein, Sarah M., The Impact of ECB Communication on Financial Market Expectations (April 2006). KOF Working Paper Series No. 135, Available at SSRN: https://ssrn.com/abstract=900411 or http://dx.doi.org/10.2139/ssrn.900411

Michael J. Lamla

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Sarah M. Lein (Contact Author)

Swiss National Bank ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

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