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Effectiveness of Central Bank Communication


This research project examines and compares the consequences of European Central Bank and Federal Reserve’s decisions and announcements on the whole distribution of financial market expectations about future monetary policy moves. The value added of this study is two-fold. First, we contribute to the rapidly expanding literature on central bank communication by shedding further light on asset price reactions to monetary policy: by looking at the whole distribution of market expectations, we can assess whether central bank communication increases “fundamental” uncertainty and thus whether public announcements are welfare improving or reducing. Moreover, by carrying out a comparative study exercise and comparing two different communication policies, ECB versus Fed, we can draw important normative conclusions on what is the most effective communication policy. Other improvements include the time-series analysis of a full interest rate cycle, the potential better methods to extract risk-neutral PDFs, and the precise assessment of the effects of the ECB’s words, separately from the effects of its deeds, by using tick-by-tick option price data to derive the whole distribution of market expectations. Second, we contribute to the empirical finance literature by analyzing the effects of a new type of news item, specifically the information originating from central bank announcements, rather than scheduled macroeconomic announcements. The effects that we document have relevant implications not only for a better understanding of the monetary policy transmission mechanism, but also for yield curve modeling and for the microstructure of bond markets. The methodologies developed and the results found will be important both for a monetary economics and a finance audience. More generally, many of the findings and prescriptions stemming from this research project could be straightforwardly and directly applied to designing national Governments’ communication policies.

Field of science

  • /social sciences/economics and business/business and management/commerce
  • /social sciences/economics and business/economics
  • /humanities/languages and literature/literature - general
  • /social sciences/economics and business

Call for proposal

See other projects for this call

Funding Scheme

MC-IEF - Intra-European Fellowships (IEF)


Place De L Universite 1
1348 Louvain La Neuve
Activity type
Higher or Secondary Education Establishments
EU contribution
€ 151 391,75
Administrative Contact
Luc Bauwens (Prof.)