Monetary Policy Transmission in Vector Autoregressions: A New Approach Using Central Bank Communication

In this paper, we study the role played by central bank communication in monetary policy transmission. We employ the Swiss Economic Institute’s Monetary Policy Communicator to measure the future stance of the European Central Bank’s monetary policy. Our results indicate, first, that communication ha...

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Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 43-2011)
Main Author: Neuenkirch, Matthias
Format: Work
Language:English
Published: Philipps-Universität Marburg 2013
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Online Access:PDF Full Text
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Summary:In this paper, we study the role played by central bank communication in monetary policy transmission. We employ the Swiss Economic Institute’s Monetary Policy Communicator to measure the future stance of the European Central Bank’s monetary policy. Our results indicate, first, that communication has an influence on inflation (expectations) of actual target rate changes. Communication also plays a noticeable role in the transmission of monetary policy to output. Consequently, future work on monetary policy transmission should incorporate both a short-term interest rate and a communication indicator. A second finding is that the monetary policy transmission mechanism changed during the financial crisis as the overall effect of monetary policy on (expected) inflation and output is weaker and of shorter duration during this period compared to the overall sample period.
Physical Description:20 Pages
ISSN:1867-3678
DOI:10.17192/es2024.0108