Financial Market Experts Assess ECB's Communication Policy Better than Fed's

The European Central Bank's (ECB) decisions about key interest rates are of great importance to the European economy and the worldwide financial markets. Monetary policy decisions should therefore be well prepared by a coherent communication policy. The ECB manages this well. But the Federal Reserve Bank (Fed) receives considerably worse marks. These are the findings of a survey among 276 financial experts, conducted by the Centre for European Economic Research (ZEW) in Mannheim in August 2008.

The experts were asked whether the decisions by the ECB and the Fed about key interest rates were announced adequately. More than 80 percent of the questioned experts assess the ECB's communication as very consistent or consistent. Only 57 percent hold the same opinion about the US-American central bank Fed. The good communication policy of the ECB is of great importance. 88 percent of the financial experts state that the communication policy is important or very important to forming their expectations of short-term interest rates.

The ZEW survey shows that there are clear differences in the importance of the instruments used by central banks to prepare the market for upcoming decisions on interest rates. About 80 percent of the experts assess the monetary policy statement and the press conference, in which the monetary policy decision is announced, as the most important communication channels. About 55 percent of the questioned experts use macroeconomic forecasts by the central bank to form their expectations. More than one third, but less than half of the experts uses additional information sources like speeches, interviews or monthly reports. The "minutes" and "votes" of monetary policy meetings are of the least importance to the experts. These two instruments are not used by the ECB. The clear assessment of the different communication instruments indicates that the suggestion by the European parliament to publish information on the process of the decision-making during monetary policy meetings of the ECB would not considerably improve the communication. According to the survey, the ECB seems to do justice to the market's needs for information.

For further information please contact

Dr. Sandra Schmidt, E-mail: s.schmidt@zew.de