Central Bank Communication, Ambiguity and Market Interest Rates: A Case Study

We asked a representative sample of European banks to judge messages released by ECB members (from February 1999 to February 2000) in terms of their ambiguity. In this paper, we use our survey to derive a definition of ambiguity and to evaluate ECB communication. A Structural Vector Autoregression model is estimated and the results show that ambiguous messages were able to affect agents’ expectations for a limited period after a speech by ECB members; moreover, they show that ambiguity had temporary effects also on volatility and moved rates away from the policy rate.