Climate Policy Dominant Theme in ECB Speeches Alongside Price Stability
Research
11.10.2022
ZEW study on ECB communication
ZEW economist Heinemann: “The ECB needs to emphasise that price stability is its primary objective.”
In public speeches, Christine Lagarde and the other members of the ECB's Governing Council more frequently address additional goals beyond the main monetary policy objective of price stability. In a recent ZEW study, the ZEW researchers Friedrich Heinemann and Jan Kemper, with support from the Brigitte Strube Foundation, analysed this change in the ECB’s communication since the introduction of the euro. For this study, over 3,800 speeches were compared with the help of AI-based text analysis methods.
These research results show that Council members dedicated significantly more attention to economic and social goals other than price stability since the introduction of the euro. Financial stability, government bond markets and public debt, for example, are addressed significantly more often since the financial and public debt crisis in 2008/09. Over the past five years, however, climate policy has been the “shooting star” in ECB speeches. Before this point in time, climate policy was hardly ever addressed by ECB representatives. Now, they address the issue in every other speech. Compared to her fellow ECB Executive Board members, ECB President Christine Lagarde mentions climate policy most frequently in her speeches, while her predecessor Mario Draghi hardly ever addressed the issue.
The focus on the primary objective of price stability has fluctuated over the years. Compared to the years following the introduction of the euro, the prominence of the price stability issue had somewhat declined before the pandemic. Due to the rising inflation, price stability has become a more prominent concern again. In their speeches, representatives from Southern Europe do not address price stability as often as their colleagues in Northern and Western Europe.
“Opening monetary policy discourse to a wide variety of objectives clearly reflects the ECB’s strategy to demonstrate that monetary policy goes hand in hand with societal accountability,” says ZEW economist Jan Kemper. The authors of the study point out that this strategy might turn out to be risky regarding the latest significant surge in inflation. “If ECB representatives continue to address a wide variety of issues, this could reduce their credibility concerning monetary policy. The public might start to think, the ECB no longer prioritises price stability,” states Professor Friedrich Heinemann, Head of ZEW’s Research Unit “Corporate Taxation and Public Finance”. He recommends the ECB to communicate in unmistakable terms that its monetary policy is now completely focused on fighting inflation.
The analysis is based on over 3,800 speeches given by ECB Executive Board members or presidents of national central banks since the euro was introduced in 1999. The authors used AI-based text analysis methods to determine how often certain traditional and new monetary policy objectives were addressed. Apart from the traditional objective of price stability, fiscal policy, financial stability, distribution and climate policy issues were included.
