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Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording


In this analysis, the informational content of central bank rhetoric is assessed based on the experience with the ECB since 1999. Among the ECB’s communication channels we focus on the monthly press conferences. Based on a counting of certain signal words we construct a wording indicator reflecting the “hawk-ishness” of monetary rhetorics. For the construction, we develop an objective algorithm. We then integrate this indicator into a standard Taylor type ordered probit model for the explanation of the interest rate. We show that the wording indicator can improve the model’s fit when added to the standard explanatory variables. However, a model based solely on this indicator performs worse than the baseline. The results are confirmed by an out of sample analysis where the determination of the wording indicators’ weights is based on the early ECB period which, subsequently, is excluded from the tests. Our conclusion is that linguistic analysis can improve but not substitute more rigorous forecasting techniques based on hard economic data.


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Correspondence to Friedrich Heinemann.

Additional information

We are grateful for helpful comments from Carlo Rosa, Michael Ehrmann, Lucian Orlowski and the participants of the National Bank of Poland Conference “Central Bank Transparency and Communication: Implications for Monetary Policy” in Warsaw in June 2005, from Etienne Farvaque and the participants of the 22nd Symposium on Banking and Monetary Economics in Strasbourg in June 2005 as well as from two anonymous referees. We thank Gunnar Lang for able research assistance.

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Heinemann, F., Ullrich, K. Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording. Swiss J Economics Statistics 143, 155–185 (2007).

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  • Taylor rule
  • wording
  • central bank communication


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