Does ECB Communication Help in Predicting its Interest Rate Decisions?

30 Pages Posted: 6 Oct 2006

See all articles by David-Jan Jansen

David-Jan Jansen

De Nederlandsche Bank ; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Jakob de Haan

University of Groningen - Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute); De Nederlandsche Bank

Date Written: September 2006

Abstract

We examine the usefulness of communication by the European Central Bank for predicting its interest rate decisions. We use ordered probit models based on the Taylor rule which we estimate using statements by ECB officials as well as macroeconomic variables. Statements by ECB officials on the main refinancing rate and future inflation are significantly related to ECB decisions. However, an out-of-sample evaluation shows that communication-based models do not outperform models based on macroeconomic data in predicting decisions. Both sets of models only accurately predict decisions to leave interest rates unchanged.

Keywords: ECB communication, interest rate decision, Taylor rule, ordered probit models

JEL Classification: E43, E52, E58

Suggested Citation

Jansen, David-Jan and de Haan, Jakob, Does ECB Communication Help in Predicting its Interest Rate Decisions? (September 2006). CESifo Working Paper Series No. 1804, Available at SSRN: https://ssrn.com/abstract=935031 or http://dx.doi.org/10.2139/ssrn.935031

David-Jan Jansen (Contact Author)

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

HOME PAGE: http://sites.google.com/site/djansenresearch

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Jakob De Haan

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

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