Why do financial market experts misperceive future monetary policy decisions?

Arbeitspapier

This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of individual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's interest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 10-045

Classification and Topics

• Classification: Wirtschaft ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Monetary Policy ; Central Banks and Their Policies ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Subject: Central bank communication ; Interest rate forecasts ; Survey expectations ; Panel random coefficient model ; Zinspolitik ; Inflationserwartung ; Finanzanalysten ; Zentralbank ; Staatliche Information ; Europäische Wirtschafts- und Währungsunion ; Taylor-Regel ; Panel ; Schätzung ; Eurozone

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schmidt, Sandra ; Nautz, Dieter
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/37077
• Last update: 10.03.2025, 11:44 AM CET