Luca Ebener
- 14 October 2026
- WORKING PAPER SERIES - No. 3298Details
- Abstract
- We introduce a novel measure of how European Central Bank (ECB) monetary policy is interpreted by analysts at major investment banks. We construct a “policy interpretation shock” based on the language used in analysts’ reports covering monetary policy decisions by the ECB’s Governing Council (GovC). The main identifying assumption is that changes in the way analysts report on policy communication by the GovC—that is, the change in the policy tone from the preview report to the recap report—reflect unexpected information revealed by the policy event. Using GPT-based sentiment extraction, we show that the tone in these reports closely tracks that of the GovC, often even anticipating shifts in tone. Changes in the policy tone before and after meetings capture how market intermediaries interpret and adjust their assessment of policy decisions. These interpretation shocks are followed by contractionary macroeconomic responses and systematic movements in financial-market prices. These findings underscore the important role of communication in shaping expectations and influencing economic outcomes.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
- 30 June 2025
- OCCASIONAL PAPER SERIES - No. 372Details
- Abstract
- This report focuses on the implications of the changed inflation environment for the ECB’s monetary policy strategy, including the lessons learned from both the low inflation and high inflation periods, and the transition from one to the other. The starting point of the report is the outcome of the Monetary Policy Strategy Review 2020-21. While the previous review was conducted in an economic environment of low inflation, with interest rates in proximity to the effective lower bound (ELB), the inflation surge that followed the COVID-19 pandemic underscores the importance of a monetary policy strategy that enables the Governing Council to effectively respond to major changes in the inflation environment.