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| Title: | | Why do financial market experts misperceive future monetary policy decisions?  |
| Authors: | | Schmidt, Sandra Nautz, Dieter |
| Issue Date: | | 2010 |
| Series/Report no.: | | ZEW Discussion Papers 10-045 |
| Abstract: | | This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of individual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's interest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis. |
| Subjects: | | Central bank communication Interest rate forecasts Survey expectations Panel random coefficient model |
| JEL: | | E47 E52 E58 C23 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des ZEW ZEW Discussion Papers
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