We study the importance for financial markets of the various dimensions of the communication of the ECB and the Eurosystem. In particular, the communication outside the monetary policy meeting days (communication outside the monetary policy meeting days or CoMPD) is considered, consisting of interventions (i) by the ECB Presidents, (ii) by the other members of the Executive Board of the ECB (EB), (iii) the members of the Governing Council of the ECB representing the national central banks (NCBs) of France, Germany, Italy and Spain and (iv) the hearings of the President of the ECB by the European Parliament. We also examine how market movements in response to these types of communications compare to movements on monetary policy meeting days.
To this end, we build a Euro Area Communication Event-Study Database (EA-CED) containing the daily and intraday variations of different financial variables related to different ECB / Eurosystem communication events. This database offers many possibilities for studying the effect of central bank communication (including monetary policy announcements) on financial markets.
First, we show that ECB and Eurosystem communication events are frequent outside the days of monetary policy meetings. In particular, we observe that these events increased during the financial crisis of 2007-2008, reaching a peak in 2013, when the ECB introduced forward guidance on benchmark interest rates. Interestingly, the ECB President made fewer speeches after the financial crisis, while the number of speeches from other Governing Council members increased over the years.
Second, using an event study approach to daily data, we document that the CoMPD is associated with significant changes in OIS Eonia rates, government bond yields, and market inflation expectations at different maturities. Regarding the type of speaker, we find that the speeches of the President of the ECB have the strongest effect on daily movements. However, we also find a difference between the effect of the CoMPD before and after the global financial crisis. In the run-up to the crisis, it was mainly communication from NCB governors and other members of the ECB’s executive board that moved markets. In the post-crisis period, it is above all the communication of the President of the ECB.
Furthermore, we study the interventions that took place in the few weeks preceding the ECB meetings where there were changes in monetary policy due to an easing or a tightening. We see the Eonia rates of the OIS on short-term maturities falling in the days of the speeches of the ECB presidents that preceded the meetings that led to an easing. On the other hand, medium- and long-term Eonia OIS rates rise before tightening decisions. Bloomberg’s media coverage of these speeches corroborates our findings, revealing that some of the observations made during these events contain a clear signal about the imminent monetary policy decision. Finally, an intraday analysis of CoMPD events highlights systematic movements in the EONIA rates of the OIS using short time windows around the speeches of ECB presidents, in line with the daily analysis.
Overall, our findings confirm the importance of central bank communication for financial market movements and underline the importance of considering communication outside normal meeting days to understand monetary policy transmission. This suggests that analyzes that take into account only announcements made during monetary policy meeting days to identify monetary policy shocks or surprises should be extended to incorporate signals from ECB officials’ communications outside those days. .