Speaker: Cinzia Guerrieri, LUISS
Title: On the Effectiveness of Central Bank’s Verbal Guidance: Evidence from the ECB (with Maddalena Galardo (LUISS and Bank of Italy)).
Abstract: In this paper we propose a new indicator of central bank’s verbal guidance which measures the intensity of communication about future policy intentions, based on the frequency of future verbs. We consider the case of the European Central Bank: we first compute the index for the press conference and analyze its main determinants. In the second part we study the effects of the identified real-time innovation of the ECB’s guidance on daily changes of money markets rates. Our results show that the financial markets’ expectations on future short-term interest rates are affected by the language used, after controlling for the standard policy rate shock and the announcement of unconventional monetary policies. This suggests the importance of the verbal guidance as a policy instrument for the ECB monetary policy signaling channel.