Disentangling qualitative and quantitative central bank influence
Abstract
We aim at investigating how two different types of central bank communication affect the
private inflation expectations formation process. The effects of ECB inflation projections and
Governing Council members’ speeches on private inflation forecasts are identified through
an Instrumental-Variables estimation using a Principal Component Analysis to generate
valid instruments. We find that ECB projections have an effect on private current-year
forecasts, while ECB speeches and the ECB rate impact next-year forecasts. When both
communication types are interacted and go in the same direction, the inflation outlook signal
tends to outweigh the policy path signal conveyed to private agents (and vice-versa).
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