ECB blog says between-meeting speeches move markets as much as the decisions do
Victoria Shinder1 min readA post on the ECB Blog — signed, and to be read as the author's view rather than a Governing Council position — makes a claim that is easy to nod at and harder to use: speeches and interviews given by policymakers between Governing Council meetings can move financial markets just as much as the monetary policy decisions themselves.
The formal announcement after each meeting, held roughly every six weeks, remains the ECB's primary channel for communicating its stance. But communication does not stop in between, and speeches and interviews offer insight into ongoing deliberations and future direction. The post's contribution is methodological: it examines euro area market reactions to both the formal announcements and the inter-meeting communication, and uses that to measure the effects of monetary policy on euro area inflation and unemployment.
What it means
The methodological point is the interesting one. Identifying the effect of monetary policy on the real economy is hard because decisions respond to the outlook — if the central bank cuts when it expects weakness, a naive regression finds cuts causing weakness. Using market reactions to communication helps because a speech in week three of a six-week cycle carries information about the reaction function without being accompanied by a fresh forecast, which makes the surprise component cleaner.
The uncomfortable implication is for the institution rather than the econometrics. If between-meeting remarks move markets as much as the decision, then the communication calendar is part of the policy instrument, and it is the part with the least process around it — no vote, no minutes, no agreed language. Central banks have generally handled this with self-restraint rather than rules. A paper demonstrating how much the remarks actually move is, read one way, an argument that the self-restraint is load-bearing.