ABSTRACT We asked a representative sample of European banks to judge messages released by ECB members (from February 1999 to February 2000) in terms of their ambiguity. In this paper, we use our survey to derive a definition of ambiguity and to evaluate ECB communication. A Structural Vector Autoregression model is estimated and the results show that ambiguous messages were able to affect agents’ expectations for a limited period after a speech by ECB members; moreover, they show that ambiguity had temporary effects also on volatility and moved rates away from the policy rate.
Cite this paper
C. Giorgio and E. Rossi, "Central Bank Communication, Ambiguity and Market Interest Rates: A Case Study," Modern Economy, Vol. 3 No. 3, 2012, pp. 295-301. doi: 10.4236/me.2012.33039.
 A. Cuckierman and A. H. Meltzer, “A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information,” Econometrica, Vol. 54, No. 5, 1986, pp.1099-1138. doi:10.2307/1912324
A. Cuckierman, “Central Bank Strategy, Credibility and Independence: Theory and Evidence,” MIT Press, Princeton, 1992.
L. Svensson, “Optimal Inflation Targets, Conservative Central Banks, and Linear Inflation Contracts,” NBER Working Paper, No. 5251, 1995, pp. 1-41.
M. R. Garfinkel and S. Oh, “When and How Much to Talk. Credibility and Flexibility in Monetary Policy with Private Information,” Journal of Monetary Economics, Vol. 35, No. 2, 1995, pp. 341-357.
A. P. Schioppa, “La Sicurezza Monetaria e le Banche Centrali,” Bollettino Economico della Banca d’Italia, Vol. No. 25, 1995.
A. Blinder, M. Ehrmann, M. Fratzcher, J. de Haan and D.-J. Jansen, “Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence,” Journal of Economic Literature, 2008, Vol. 46, No. 4, pp. 910-945.
A. Blinder, “Central Banking in Theory and Practice,” MIT Press, Princeton, 1998.
M. Rafferty and M. Tomljanovich, “Central Bank transparency and Market Efficiency: An Econometric Analysis,” Journal of Economics and Finance, Vol. 26, No. 2, 2002, pp. 150-161. doi:10.1007/BF02755982
J. Campbell and R. Shiller, “Yield Spreads and Interest Rates Movements: a Bird’s Eye View,” NBER Working Paper, No. 3153, 1989, pp. 1-42.
R. Dornbusch, C. Favero and F. Giavazzi, “The Immediate Challenges for the European Central Bank,” NBER Working Paper, No. 6369, 1998, pp. 1-52.
B. S. Bernanke. “Fedspeak,” The American Association Meetings, San Diego, 2004.
J. de Haan, S. Eijffinger and K. Rybiński, “Central Bank Transparency and Central Bank Communication: Editorial Introduction,” European Journal of Political Economy, Vol. 23, No. 1, 2007, pp. 1-8.
E. Connolly and M. Kohler, “News and Interest Rate Expectations: A Study of Six Central Banks,” In: C. Kent and S. Guttmann, Eds., The Future of Inflation Targeting, Reserve Bank of Australia, Sydney, 2004, pp. 108-134.
M. Ehrmann and M. Fratzscher, “Communication by Cen- tral Bank Committee Members: Different Strategies, Same Effectiveness?” Journal of Money, Credit, and Banking, Vol. 39, No. 2-3, 2007, pp. 509-541.
R. Reeves and M. Sawicki, “Do Financial Markets React to Bank of England Communication?” European Journal of Political Economy, Vol. 23, No. 1, 2007, pp. 207-227.
D. L. Kohn and B. Sack, “Central Bank Talk: Does It Matter and Why?” Bank of Canada, Ottawa, 2004, pp. 175-206.
A. Fontani, E. Rossi and M. Spallone, “Ambiguity of ECB: What European Banks Think of It and How It Affects Money Markets,” OCSM Working Paper, Luiss University of Rome, No. 131, 2001, pp. 1-15.
M. Fratzscher, “Communication and Exchange Rate Policy,” Journal of Macroeconomics, Vol. 30, No. 4, 2008, pp. 1651-1672. doi:10.1016/j.jmacro.2008.07.002
B. Winkler, “Which Kind of Transparency? On the Need for Clarify in Monetary Policy Making,” ECB Working Paper, European Central Bank, No. 26, 2000, pp. 1-36.
C. Amisano and C. Giannini, “Topics in Structural VAR Econometrics,” Springer-Verlag, Berlin, 1997.