•We exploit the unique setting provided by ECB asset purchase programs.•Purchases of identical assets under different titles generates different responses.•PSPP affects inflation swaps whereas PEPP ...impacts sovereign spreads.•Only the variables associated with the communicated rationale of each program react.•We provide evidence of this signaling channel from other ECB and BoE announcements.
This paper explores the signaling effect of central bank announcements clarifying the reaction function of policy interventions. We exploit the unique setting provided by ECB asset purchase programs. We find that the same action – purchases of identical assets – undertaken under different titles generates different responses. PSPP affects inflation swaps whereas PEPP impacts sovereign spreads, so that only the variables associated with the communicated rationale of each program react. We highlight the importance of clarifying the conditional path of policy instruments for the transmission of monetary policy. We also provide evidence of this signaling channel from other ECB and BoE announcements.
In this paper, we argue that monetary policy in the form of central bank communication can shape long-term interest rates by changing risk premia. Using high-frequency movements of default-free rates ...and equity, we show that monetary policy communications by the European Central Bank on regular announcement days led to a significant yield spread between peripheral and core countries during the European sovereign debt crisis by increasing credit risk premia. We also show that central bank communication has a powerful impact on the yield curve outside regular monetary policy days. We interpret these findings through the lens of a model linking information embedded in central bank communication to sovereign yields.
As the current international monetary system is increasingly unstable and unbalanced, even more countries have begun to study and implement digital currency and put forward the concept of ...super-sovereign currency. The inherent defects of the international monetary system dominated by the US dollar provide space for the generation and development of super-sovereign digital currencies. Based on the superficial reasons for the issuance of decentralized digital currencies by various countries and the current policy situation, this paper proposes the impact of future super-sovereign digital currencies on the international monetary system. Taking the issuance of digital currencies by the People’s Bank of China as the starting point, this paper combines the data of the Federal Reserve and the Bureau of Economic Analysis from general to special. It is concluded that the super-sovereign digital currency may fundamentally reshape the international monetary system and the pattern of international trade. Developing countries, such as China, may hold the upper hand of the upcoming changes in the international monetary system by promoting the internationalization of the digital yuan with its leading position in the field of central bank digital currency and its important position in world trade.
Parliamentary hearings are a fundamental tool to hold independent central banks accountable. However, it is not clear what type of information central banks provide when they communicate with ...parliaments. In this article, we compare the communication of the European Central Bank (ECB) in parliamentary hearings to its communication in the press conferences. Using text analysis on the ECB President's introductory statements in parliamentary hearings and press conferences from 1998 to 2021, we show that the ECB uses hearings to discuss topics that are less covered in press conferences. We also find that the ECB's policy stance in the hearings tend to reflect the stance in press conferences, and that the degree of language complexity is similar in the two fora. These findings suggest that the ECB mainly uses parliamentary hearings to further explain policy decisions first presented at press conferences but also to put them in a broader context.
Using new data on the term in office of central bank governors for a large set of countries for 1970–2005, we estimate a model for the probability that a central bank governor is replaced before the ...end of his legal term in office. We formulate hypotheses based on the literature on the determinants of central bank independence that are tested using conditional logit models and the robustness approach of
Sala-i-Martin (1997). We conclude that, apart from the share of the legal term in office that has elapsed, political and regime instability, the occurrence of elections, and the ratio of private credit to GDP increase the probability of a turnover.
We analyze the path from cryptocurrencies to official Central Bank Digital Currencies (CBDCs), to shed some light on the ultimate dematerialization of money. To that end, we made an extensive search ...that resulted in a review of more than 100 academic and grey literature references, including official positions from central banks. We present and discuss the characteristics of the different CBDC variants being considered—namely, wholesale, retail, and, for the latter, the account-based, and token-based—as well as ongoing pilots, scenarios of interoperability, and open issues. Our contribution enables decision-makers and society at large to understand the potential advantages and risks of introducing CBDCs, and how these vary according to many technical and economic design choices. The practical implication is that a debate becomes possible about the trade-offs that the stakeholders are willing to accept.
In this paper, we examine whether a tone shock derived from European Central Bank communication helps predict ECB monetary policy decisions. To this purpose, we first use a bag-of-words approach and ...several dictionaries on the ECB's Introductory Statements to derive a measure of tone. Next, we orthogonalise the tone measure on the latest data available to market participants to compute the tone shock. Finally, we relate the tone shock to future ECB monetary policy decisions. We find that the tone shock is significantly and positively related to future ECB monetary policy decisions, even when controlling for market expectations of monetary policy and the Governing Council's inter-meeting communication. Further extensions show that the predictive ability of the tone shock is robust to (i) the normalization of the tone measure, (ii) alternative market expectations of monetary policy, and (iii) the horizon of macroeconomic variables used in the Taylor-type monetary policy rule. These findings highlight an additional channel through which ECB communication improves monetary policy predictability, suggesting that the ECB may have private information that it communicates through its Introductory Statements.
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•We assess whether a tone shock helps predict ECB monetary policy decisions.•We measure the tone of ECB's President introductory statements.•We orthogonalise the tone measure on a set of variables to compute a tone shock.•The ECB tone shock is significantly related to future ECB policy decisions.
This paper examines the effects of unconventional monetary policy by the Federal Reserve, Bank of England, European Central Bank and Bank of Japan on bond yields, stock prices and exchange rates. We ...use common methodologies for the four central banks, with daily and intradaily asset price data. We emphasize the use of intradaily data to identify the causal effect of monetary policy surprises. We find that these policies are effective in easing financial conditions when policy rates are stuck at the zero lower bound, apparently largely by reducing term premia.
•Current communication practices of the ECB and the Fed are pretty similar.•ECB messages are difficult to understand, despite some recent improvement.•Forward guidance hindered an adequate response ...to the rapid increase in inflation.•The general public is not very well informed about the ECB.•Communication with the general public is important.•Communication with financial markets will remain the focus of communication.
This paper provides an overview of (research on) the communication policies of the ECB. We first compare the communication policies of the ECB and the Fed. Despite many similarities, there are also some differences which in part reflect that both central banks have different objectives. This became more pronounced after both central banks had concluded their monetary policy strategy reviews. Thereafter, we zoom in on forward guidance and discuss recent research on the impact of the ECB’s communications, and recent changes therein as a result of the ECB’s monetary policy strategy review. It is concluded that this review was to a large extent a confirmation of the actual change in the ECB strategy. Due to the rapid increase in inflation that started after the recovery of the COVID-19 pandemic, the review was quickly outdated.
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