ISSN - 2038-6931 WORKING PAPER 02/2010

ISSN - 2038-6931 WORKING PAPER 02/2010 Copyrigh CREG 2010 Tui i dirii riservai

The effecs of ambiguous cenral bank s communicaion on money marke raes: he sudy of a special case Carlo Di Giorgio a, Alessio Fonani b, Enzo Rossi c,± a Tor Vergaa Universiy of Rome and CeMASM, LUISS Universiy of Rome. b Cassa di Risparmio di Firenze and LUISS Universiy of Rome. c Tor Vergaa Universiy of Rome and LUISS Universiy of Rome. Absrac We asked a represenaive sample of European banks o judge messages released by ECB members (from February 1999 o February 2000) in erms of heir ambiguiy. In his paper, we use he answers provided by he surveyed sample o derive a definiion of ambiguiy and o evaluae ECB communicaion. Also, we give examples on how o use our definiion of ambiguiy for economeric purposes. A Srucural Vecor Auoregression model is esimaed and he resuls show ha ambiguous messages were able o affec agens expecaions for a limied period afer a speech by ECB members; moreover, hey show ha ambiguiy had emporary effecs also on volailiy and moved raes away from he policy rae. JEL CLASSIFICATION: C32, E4, E5 Keywords: ECB communicaion; ambiguiy indicaors; Srucural VAR ± Corresponding auhor. Tel. +39 6 85225724. E-mail addresses: carlo.digiorgio@uniroma2.i (C. Di Giorgio), alessio.fonani@carifirenze.i (A. Fonani), erossi@luiss.i (E. Rossi). We hank Mr. Brizi, former Presiden of Euribor A.I.C.; Mr.Drago; Mr. Cocuccioni and ATIC for heir suppor. We also hank Marco Spallone for his useful suggesions and Luca Viali for his effor. This paper is a chaper of a research projec financed by he former MURST and supervised by Prof. Enzo Rossi. 2

1. Inroducion The exisence of a rade-off beween credibiliy and flexibiliy of moneary policies is well known in he radiional lieraure. The meaning of such rade-off is he following: if moneary auhoriies perceive ha he inflaion bias due o a lack of credibiliy makes heir final goals impossible o reach, hey may find convenien o disclose heir privae informaion in order o gain more credibiliy (i.e., sharing informaion plays he same role of a pre-commimen); however, if moneary auhoriies choose o pursue sabilizaion, some of heir sraegies are more effecive if hey are unexpeced 1. Given his rade-off, we wondered wheher an ambiguous communicaion could be a sraegic choice aimed a gaining flexibiliy or no. More precisely, we wondered wheher an ambiguous communicaion could make cenral banks less accounable and cenral banks goals easier o achieve. We believed ha he answer should come from empirical sudies on he effec of ambiguiy on direcion and volailiy of ineres raes. More recen lieraure has explored he impac of communicaion on he direcion of ineres rae, and examined he volailiy of ineres raes during he process of adjusmen. Bu here, volailiy is relaed o marke movemens due o he inclusion of news, and no also, if any, o ambiguiy of communicaion. On he oher side, many auhors poin ou ha classify and hen code on a numeric scale all saemens according heir conen and inenion, is necessarily subjecive and here may be misclassificaions. In his view, also ambiguiy of communicaion should be emphasized, sressing ou he specific difficuly in coding i. In his lieraure, we could no find any definiion (and measure) of ambiguiy ha 1 Many auhors focused on his opic. Cuckierman (1986, 1991) proved ha "hrowing dus in he eyes" migh be a good sraegy, if moneary auhoriies have o surprise raders in order o minimize heir loss funcions. Svensson (1995) proposed he so called inflaion argeing. He showed ha ransparency and pre-commimen may alleviae he inflaion bias in case of lack of credibiliy. Garfinkel and Oh (1995) showed ha here exiss a negaive correlaion beween he degree of precision of he announcemens and he inflaion bias. Finally, Padoa Schioppa (1995) said ha ambiguiy migh be a good sraegy in case of insabiliy, since i helps keeping a high consideraion of moneary auhoriies. 3

could serve our purpose. So, we changed he focus and we decided o provide a new approach o ambiguiy ha could be of some pracical use. The idea was o ask he marke operaors iself abou heir percepion abou inenion and ambiguiy of he speeches of he Cenral Bank. In order o do ha, we surveyed a represenaive sample of European banks asking hem o judge he messages released by ECB members from he 2 nd of February 1999 o he 22 nd of February 2000 in erms of heir ambiguiy. The survey was conduced immediaely afer he period considered. Quesions were addressed o reasury managers in charge of each bank. The survey has no been updaed o include more recen years, since daa were gahered and sen o he banks reasury manager, bu over he ime here were various bank fusions and acquisiions, so ha i was no possible o updae and replicae he survey wih a homogenous sample. In his view, our model can be considered a simulaion exercise relaed o a paricular period (he firs year) of he ECB hisory. The choice of ECB and Euro s saring period was made no in order o evaluae he Cenral Bank s policy, bu because his offers a special opporuniy o assess he relaionship beween communicaion and he managemen of money markes in general. In he following secions, we use he answers provided by he surveyed sample o define and measure ambiguiy. In erms of our new definiion, we conclude ha ECB communicaion from February 1999 o February 2000 was perceived as ambiguous by agens operaing in European money markes. Also, we provide examples o show ha, if ambiguiy is measurable, is effec on money markes can be quanified. In paricular, we use a srucural VAR o capure he effecs of ambiguiy on a seleced se of money marke variables, noing ha he idenificaion of he model suppor he causal link from ambiguiy o he volailiy and he oher variables bu i does no suppor he conrary 2. For he inerval of ime aken ino consideraion, he resuls of he esimae are he following: 2 The idenificaion scheme is presened in he equaions (5), and validaed by a LR es. 4

1) messages were able o affec expecaions, and hese in urn affeced marke raes; 2) ambiguiy had a srong effec on volailiy; 3) ambiguiy moved raes away from he policy rae. Given hese resuls, we argue ha ambiguiy of ECB communicaion was no a sraegic choice, bu he resul of a lack of coordinaion among members, who didn share a homogeneous view on he sance of moneary policy. We can speak of lack of clearness of he moneary policy as a whole, in his resriced sense. We wan o poin ou ha his paper is no aimed o criicize ECB. Noice ha a he ime we colleced he daa, we had o make a choice abou he cenral bank whose communicaion was o be invesigaed. We chose o focus on ECB communicaion because ECB was recenly esablished and ambiguiy could arise from many differen sources (i.e., sraegic choices, differen backgrounds of ECB members, iniial lack of coordinaion).the main resul is ha, in he case sudied, ambiguiy wasn a sraegic choise. The paper is organized as follows: Secion 2 conains he relaed lieraure and beer moivaes our paper. Secion 3 is a descripion of he survey sen o he sampled European banks; in paricular, i explains how he quesions included in he survey were chosen and how he sample o be surveyed was seleced.. Secion 4 inroduces he srucural VAR model and discusses he impulse response funcions in order o assess he dynamic behavior of he model. Secion 5 summarizes he main resuls. We can speak of lack of clearness of he moneary policy as a whole, in his resriced sense. 2. Relaed Lieraure Many economiss focused on cenral banks communicaion. Among hem, Blinder (1998) showed ha efficiency of markes is enhanced if cenral bank policies are disclosed o he public. Raffery and Tomljanovich (2002) wondered wheher he 5

predicabiliy of financial markes improved or worsened since 1994, ha is since when he FED decided a more open public disclosure. Using mehods similar o Campbell and Shiller (1989), hey concluded ha forecasing errors decreased. Dornbusch e al. (1998) highlighed he imporance of he abiliy o communicae o he public for he success of ECB. Bernanke (2004) has acknowledged ha communicaion plays a seminal role in improving he effeciveness of policy. The lieraure on cenral bank communicaion has shown i may use various channels and ha here is no opimal cenral bank communicaion sraegy, since one sraegy could work for one cenral bank, bu may no work for he oher (de Haan e al, 2007). As o he imporance of he speeches of a Cenral Bank board, as an imporan way of communicaion, here are specific sudies. Connolly and Kohler (2004), esimae he impac of four ypes of news on financial markes expecaions of fuure ineres raes: domesic macroeconomics news, foreign news, moneary policy surprises and cenral bank communicaion. Their resuls sugges ha cenral bank communicaion does no give a large conribuion o overall movemens in ineres rae fuures, adding only a few basis poins o he sandard deviaion of ineres raes on he day which he communicaion occurs, whereas in comparison hey find ha domesic and foreign macroeconomic news make a wider conribuion o he variance of changes in ineres rae fuures. Bu his is no all he sory, because oher auhors reach differen resuls, which sress ou he imporance of communicaion. Blinder e al (2008), focus heir survey on cenral bank communicaion on high-frequency channels, such as announcemens and speeches or inerviews, noing ha i is no always sraighforward o deermine he iming of he communicaion even which causes financial markes o reac. Ehrmann and Frazscher (2007), compare he iming of communicaion of he FED, he ECB, and he Bank of England. They find ha on average on he days preceding he moneary policy meeings, here is less communicaion compared o oher days, showing ha he inensiy of communicaion is differen before raher han afer meeings for all hree 6

cenral banks, indicaing he aemp of cenral banks o prepare markes for he upcoming meeing. They find ha speeches and inerviews by FED members generally affec financial markes in he inended direcion, since saemens suggesing ighening lead o high raes and viceversa. Connolly and Kohler (2004), Reeves and Sawicki (2007), among ohers, sudy he effecs of cenral bank communicaion evens on he volailiy of financial variables, arguing ha if communicaion affec he reurns on he asses heir volailiy increase on days of cenral bank communicaions. As poined ou by Blinder e al (2008), he researchers sudy wheher he cenral bank communicaions creae news, and how hey move he financial variables, no wheher hey move markes in he righ direcion. Reeves and Sawicki (2007), underline he possibiliy ha communicaion may be endogenous, so ha i no necessarily may affec he volailiy of asse prices, whereas he endogeneiy could be a minor problem when he daes of major communicaions are known in advance. Kohn and Sack (2004), abou Federal Open Marke Commiee (FOMC) communicaion, find ha volailiy of he financial variables increases significanly when here are saemens released by he FOMC members, and hese changes show ha bank communicaion conveys relevan informaion for he markes. However, i is no clear wheher volailiy is relaed o marke movemens due o he inclusion of news, and no also, if any, o ambiguiy of communicaion. This urns ou o he relevan mehodological problem. How is poined ou by Blinder e al (2008), classify and hen code on a numeric scale all saemens, according heir conen and inenion (even more according heir ambiguiy), is necessarily subjecive and here may be misclassificaions. Moreover, when saemens are idenified hrough media inermediaries, hese could be selecive or misleading in heir repors. In our survey, we avoid his arbirariness collecing personally he speeches and asking heir judgmen abou saemens o a seleced sample of marke paricipans, so for he firs ime i is possible o race he direc percepion of he markes. In a firs paper on his opic, Fonani, Rossi and Spallone (2001), for he firs ime used a daase of speeches of ECB members, as o give an evaluaion of 7

effeciveness of communicaion in conducing moneary policy. They asked percepion direcly o marke operaors. Frazscher (2004) has made he same in order o evaluae he effeciveness of oral inervenion on exchange rae policy. However, his measure of markes percepion of he meaning of each speech is judgmenal, since i is made by he auhor iself and his, admiedly, is a facor of weakness of his work. As for our knowledge, while many auhors focused on communicaion ou cour, nobody sudied he specific effecs of an ambiguous communicaion. We believe ha his is due o he fac ha in he lieraure he noion of ambiguiy (or ransparency) is oo judgmenal o be of any pracical relevance. Winkler (2000) ried o provide a beer definiion of ransparency. He concluded ha wha maers is common undersanding beween cenral banks and heir audience. We buy his poin and ask ECB audience o judge ECB communicaion. We come up wih a se of measures for ambiguiy ha allow us o invesigae he effecs of ambiguiy of communicaion on markes in a very original manner. 3. The Survey: Choice of Quesions and Sample Selecion The survey was divided ino wo pars. The firs was abou ECB members (speakers) 3 ; he second was abou he messages (speeches) ha hose members have released in boh formal and informal evens. In he firs par, an opinion abou each speaker's influence on European money markes was asked. The second par included a se of 135 messages passed on o he public by ECB members from he 2 ND of February 1999 o he 22 ND of February 2000. These 135 messages included all messages regarding moneary policy. Also, hey included 3 In paricular, i was abou he members of he Execuive Board and he members of he Council, including wo former members sill considered auhoriaive. 8

messages regarding exchange raes and fiscal policy. The reason for his choice was ha raders usually have a clear percepion of he correlaion beween fiscal policy and moneary policy. So, we hough ha hey were able o infer he sance of moneary policy even from messages regarding fiscal maers 4. The survey was conduced immediaely afer he period considered. Quesions were addressed o reasury managers in charge of each bank. For each one of he 135 messages banks were asked o give wo judgmens. The firs one was abou he direcion of ECB inervenion ha could be inferred from he message (i.e., a rise or a decrease of he official rae, or no inervenion a all), and he measure of such inervenion (i.e., less han 50 basis poins, equal or higher han 50 basis poins). The second one was abou he ambiguiy of he message. In paricular, he banks were asked o judge each message: "very clear", "fairly clear", or "ambiguous". Obviously, some answer could be affeced by he memory of wha happened afer he messages were released. So, even if he sample was asked o focus only on he conen of each single message wihou hinking abou he pas, daa could be biased. However, even he messages ha gave wrong anicipaion have been inerpreed correcly by he sample wih no regard o wha happened afer hey were released. For his reason, we feel comforable ha he resuls do no overesimae he effec of communicaion on agens' expecaions. The sample consiss of 21 subjecs operaing in European money markes (i.e. commercial banks, invesmen banks and oher financial insiuions). I is impossible o disclose he real names of hese 21 subjecs for privacy reasons. However, all of hem are financial insiuions of large size and mos of hem are included in he EONIA group. They are from many differen European counries and all of hem operae boh in heir home counries and abroad. So, hey are a balanced and represenaive sample of agens operaing in European money markes. 4 This idea was confirmed by he answers. In fac, he surveyed sample proved iself o be able o inerpre messages abou fiscal policy in erms of expecaions on fuure ineres raes. 9

The following example gives an idea abou he survey. On February he 2 ND 1999, Noyer (ECB Vice Presiden) said: "I am no concerned ha Europe's single currency will be overly srong agains he US dollar and he Japanese yen, signaling he ECB migh no need o cu ineres raes early in 1999." Afer reading his message, 20 banks chose he following inerpreaion: ECB will leave ineres raes unchanged; only 1 bank chose: ECB will cu ineres raes by less han 50 basis poin. Also, 10 banks judged his message "very clear", 9 banks judged i "fairly clear", and 1 bank judged i "ambiguous". In he firs par of he survey Noyer was judged o be an influen ECB member: on a 1-10 scale, he received an average grade equal o 7,28. 4. The Effec of Ambiguiy on Money Markes: A Srucural VAR Model Based on previous hypohesis on he role of ECB communicaion, we use a Srucural Vecor Auoregression (SVAR) framework 5 o consider he behavior of a se of variables and o see if he ambiguiy of speeches can have significan effecs on money marke raes and may influence he financial markes agens expecaions. We consider modeling he following variables vecor Y ( voleurib, expdisp, eupolsq, amb ) (1) ha is, a daa se where - voleurib is one monh Euribor ineres rae volailiy, as represenaive of marke response o moneary policy impulse. Oher ineres raes, like Eonia were esed, bu he resuls of he SVAR model were subsanially he same. 5 See Amisano and Giannini (1997), among ohers, for a general exposiion of he idenificaion and esimaion mehods for Srucural VAR models. 10

- expdisp is he dispersion of agens' expecaions abou he direcion and he magniude of ECB inervenion. The variable expecaion ha represens such expecaions is a qualiaive variable. I ges value 1 when a message is inerpreed as an anicipaion of a cu of official raes greaer han 50 b.p., value 2 when a message is inerpreed as an anicipaion of a cu of official raes smaller han 50 b.p., value 3 when a message is inerpreed as an anicipaion of unchanged official raes, value 4 when a message is inerpreed as an anicipaion of a rise of official raes smaller han 50 b.p., value 5 when a message is inerpreed as an anicipaion of a rise of official raes greaer han 50 b.p. - eupolsq is he squared difference beween he Euribor rae and he policy rae, idenified as he ECB financing aucion rae. We recall ha in he radiional view, he Cenral Bank handles policy raes in order o influence a seleced marke rae, which represens is operaional arge. - amb is a qualiaive variable ha ges value 1 when a message is judged by he banks "very clear", value 2 when a message is judged "fairly clear", and value 3 when a message is judged "ambiguous", hen i is weighed in each poin 6. The variables are all saionary, only he policy rae is aken in firs difference since is I(1). The ime frequency of he variables is he ECB communicaion periods. Our specificaion is oriened o model hese variables by means of a vecor auoregressive model since i can analyze he relaionship beween hese variables and capuring heir ime developmen. The idenificaion scheme allows for a conemporaneous ineracion beween voleurib, expdisp, eupolsq and amb. To accoun for hese feaures, we specify a SVAR model given by he expression AY A L Y B L X Be E e E e e I (2) ' ( ) 1 ( ) ( ) 0; ( ) n 6 The weighs derive from he member weighing in influencing markes reacion o saemens and speeches. 11

where Y is he vecor of endogenous variables (1), X is a vecor of exogenous variables: in our case i conains only he policy ineres rae, AL ( ) and BL ( ) are convergen marices polynomial in he lag operaor L, e is he vecor of srucural shocks where is variance-covariance marix conains orhonormal variables uncorrelaed and wih uni variance. In he erminology of Amisano and Giannini (1997), his is an AB-model, where A and B are wo square and inverible marices. The A marix direcly applies o he observable quaniies and conains he conemporaneous ineracions beween he endogenous variables, whils he B marix applies o he unobservable variables of he e vecor of srucural shocks. Premuliplying boh sides of (2) by srucural model 1 A gives he reduced form associaed wih he Y C L Y F L X E E ' ( ) 1 ( ) ( ) 0; ( ) where (3) C L 1 ( ) A A( L), F L 1 ( ) A B( L) and are he residuals of 1 A Be he reduced form. Then hese residuals can be relaed o he srucural shocks by he following general srucural model: A Be (4) The firs sep of SVAR analysis is based on he esimaion of he reduced form, where he lag runcaion order has been se o 3 using sandard es procedures. The second sep of SVAR analysis consiss in he idenificaion and FIML esimaion of he parameers in A and B 7, a his aim, all he sample informaion needed is conained in he esimaed variance-covariance marix of he reduced form disurbances. In our model he se of linear consrains leads o he following form of A and B : 7 All esimaions of he parameers and he impulse response funcions have been carried ou using RATS and MALCOLM, a RATS procedure developed by R. Mosconi. 12

A 1 0 0 a14 b11 0 0 0 0 1 0 a 0 b 0 0 0 0 0 1 0 0 0 b 24 22 B 0 0 1 a34 0 0 b33 0 44 so, he above marices lead a he following se of resricions on he relaion beween reduced form and srucural shocks of he equaion (4): voleurib a amb b e 44 14 11 expdisp a amb b e 24 22 eupolsq a amb b e amb b e 34 33 amb vol exp ep (5) a 14, a 24 and a 34 accoun for he conemporaneous effecs of amb on voleurib, expdisp and eupolsq, respecively. Since he oher parameers of he A marix are saisically no significan a he 5% level, hey have been joinly deleed, leading o a siuaion of overidenificaion of he model, ha has been validaed by a LR es. 8 Table 1 Srucural equaions esimaes of he overidenified model voleurib 0.0855 amb 0.343e vol 2.87 14.07 expdisp 0.039 amb 0.046 e exp 1.97 14.06 eupolsq 0.06 amb 0.337 e amb 0.516 e ep amb 14.07 1.73 14.07 LR Tes for 3 overidenifying resricions: 8 The LR es is 2 (3) = 0.104 wih a p-value of [0.991] 13

0.104, significance level = 0.991 3 2 In Table 1 esimaes of he A and B parameers of he model proposed are presened along wih he associaed -values in brackes. In he las sep of he analysis i is of ineres o sudy he dynamic effecs produced by he srucural shocks, in paricular by he ambiguiy shock, on he behaviour of he considered variables. In order o perform his simulaion analysis he echniques used are he IRF (Impulse Response Funcions) for he four variables. In paricular, we are ineresed o he sudy of he dynamic responses of he level of each variable o a uni innovaion in he idenified srucural amb and expdisp disurbances. The responses of he variables are displayed in Figures 1-5, along wih heir calculaed asympoic confidence bounds. 0.35 RESP. OF EUPOLSQ TO AMB SIZE= 5% 0.30 0.25 0.20 0.15 0.10 0.05 0.00-0.05-0.10 5 10 15 20 25 30 Figure 1 Impulse response of eupolsq o a one sandard deviaion shock o amb 14

0.04 RESP. OF EXPDISP TO AMB SIZE= 5% 0.03 0.02 0.01 0.00-0.01 5 10 15 20 25 30 Figure 2 Impulse response of expdisp o a one sandard deviaion shock o amb 0.0125 RESP. OF VOLEURIB TO AMB SIZE= 5% 0.0100 0.0075 0.0050 0.0025 0.0000-0.0025-0.0050 5 10 15 20 25 30 Figure 3 Impulse response of voleurib o a one sandard deviaion shock o amb 15

0.020 RESP. OF VOLEURIB TO EXPDISP SIZE= 5% 0.015 0.010 0.005 0.000-0.005-0.010 5 10 15 20 25 30 Figure 4 Impulse response of voleurib o a one sandard deviaion shock o expdisp 0.0008 RESP. OF EUPOLSQ TO EXPDISP SIZE= 5% 0.0006 0.0004 0.0002-0.0000-0.0002-0.0004-0.0006 5 10 15 20 25 30 Figure 5 Impulse response of eupolsq o a one sandard deviaion shock o expdisp 16

In he Figure 1 we can see he response of eupolsq o an unexpeced uni innovaion in he amb shock: he impac is posiive and ransiory, i reaches he maximum in he firs five periods (abou 12%), hen i ends afer weny periods. In Figure 2, he response of expidsp is less marked (abou 1.8%) and i reaches is seady sae slowly, so ha if communicaion is ambiguous, expecaions abou fuure ineres raes are disperse. In Figure 3 he response of voleurib is posiive and abou 0.4%, he effec dies ou afer abou hiry periods. In Figure 4 and 5 are shown he responses of voleurib and eupolsq o a shock in expdisp where hey are posiive: he firs is abou 0.4%, he second 0.04% bu is effec is persisen, i akes over hiry periods o reach is seady sae. All he responses are ransiory, so ha ambiguiy has limied effecs in few periods, he difference is ha hey reach heir seady sae in a differen iming. So we can conclude ha ambiguiy of ECB communicaion and disperse expecaions abou fuure ineres raes have ransiory effecs on he volailiy of such raes, in paricular, if agens expecaions are more disperse, ineres raes are more volaile, so ha ECB communicaion could have had some effecs on European money markes hrough is influence on agens' expecaions. In he previous secion, a measure of ambiguiy was provided. In erms of such measure, for he inerval of ime considered, ECB communicaion seemed o be quie ambiguous. However, given he resuls of IRFs, if ECB pursued sabiliy, such ambiguiy was no an opimal choice. The conclusion is ha he iniial ECB ambiguiy was no a sraegic choice, bu raher he resul of a lack of coordinaion among is members. Laely, ECB communicaion is much more careful and less ambiguous. IRFs show ha no only ambiguiy increases volailiy, bu also moves marke raes away from he policy rae. Since i is plausible o hink ha ECB was willing o move marke raes owards he policy rae, he graph of Figure 1 suppors he idea ha ECB ambiguiy was he resul of a lack of coordinaion among is members. 5. Concluding Remarks 17

In his paper, we: 1) provided a new approach o ambiguiy; 2) gave examples on how o use our definiion for economeric purposes. As regard 1), we focused on ECB communicaion. In paricular, we surveyed a represenaive sample of European banks abou he ambiguiy of ECB communicaion from he 2 nd of February 1999 o he 22 nd of February 2000. Using daa gahered from he surveyed sample, we defined a se of measures o evaluae ambiguiy. In erms of such measures, we concluded ha for he inerval of ime aken ino consideraion ECB communicaion was quie ambiguous. As we already said, our aim was no o criicize ECB. However, a he ime his research projec sared, ECB was he bes possible case sudy because i was recenly been esablished and is members jus came from very differen experiences; so, no only ambiguiy could have been a sraegic choice, bu also i could have been he consequence of an iniial lack of coordinaion among members As regard 2), we presen a Srucural VAR model for he variables in he vecor Y, idenified and esimaed in he represenaion (4). From IRF plos we found ha amb had posiive ransiory effecs on Euribor volailiy, he dispersion of agens' expecaions abou fuure ineres raes and he squared difference beween he Euribor rae and he policy rae: ambiguiy moved raes away from he policy rae, alhough i reaches quie quickly is long run equilibrium vanishing is effecs. So, he paper provides a new way o look a ambiguiy. For he firs ime ambiguiy is measured rough he answers of he agens who inerac wih ECB on a daily basis. Also, given our economeric resuls, we make he argumen ha ambiguiy was no a sraegic choice, bu raher he resul of a lack of coordinaion among members of he board of he Cenral Bank. However, our paper doesn focus on inerpersonal dispersion, bu raher on he ambiguiy of he saemens hemselves, as perceived by he bankers. Therefore, we canno explicily draw a conclusion on lack of coordinaion beween individuals. 18

However, we mus suppose ha he ambiguiy percepion could derive from a nonhomogeneous view of he moneary policy by par of he speakers, from which a no clear undersanding of he speeches did arise. We can speak of lack of clearness of he moneary policy as a whole, in his resriced sense. The paper sresses ou he imporance of a non ambiguous communicaion in order o drive money markes owards he operaional objecives of he Cenral Bank. 19

References Amisano, C., Giannini, C., 1997. Topics in Srucural VAR Economerics, Springer- Verlag. Blinder, A., 1998. Cenral Banking in Theory and Pracice, MIT Press, Princeon. Blinder, A., Ehrmann, M., Frazcher, M., De Haan, J., Jansen, D.-J. Cenral Bank Communicaion and Moneary Policy: A Survey of Theory and Evidence. Journal of Economic Lieraure, 2008, 46:4. Bernanke, B.S., 2004. Fedspeak. Address o he American Associaion Meeings, San Diego, 3 January 2004. Campbell, J., Shiller, R., 1989. Yield Spreads and Ineres Raes Movemens: a Bird s Eye View. NBER Working Paper. Connolly, E., Kohler, M., 2004. News and Ineres Rae Expecaions: A Sudy of Six Cenral Banks. In The Fuure of Inflaion Targeing, ed., C. Ken, Gumann S., 108 34. Reserve Bank of Ausralia. Cuckierman, A., 1992. Cenral Bank Sraegy, Credibiliy and Independence: Theory and Evidence. MIT Press. CUCKIERMAN, A. MELTZER, A.H., 1986. A THEORY OF AMBIGUITY, CREDIBILITY, AND INFLATION UNDER DISCRETION AND ASYMMETRIC INFORMATION. ECONOMETRICA 54, N. 5, 1099-1138. de Haan, J., Eijffinger, S., Rybiński, K., 2007. Cenral bank ransparency and cenral bank communicaion: Ediorial inroducion. European Journal of Poliical Economy 23 (2007) pp. 1 8 Dornbusch, R., Favero, C., Giavazzi, F., 1998. The Immediae Challenges for he European Cenral Bank. NBER Working Paper. Ehrmann, M., Frazscher, M., 2007. Communicaion by Cenral Bank Commiee Members: Differen Sraegies, Same Effeciveness? Journal of Money, Credi, and Banking, 39(2 3) pp. 509 41. 20

Fonani, A., Rossi, E., Spallone, M., 2001. Ambiguiy of ECB: Wha European Banks Think of i and How i Affecs Money Markes. OCSM Working Paper, n. 131, Luiss Universiy of Rome. Frazscher, M., 2004. Communicaion and Exchange Rae Policy. ECB Working Paper, n. 363, May. Garfinkel, M.R., Oh, S., 1995. When and How Much To Talk. Credibiliy and Flexibiliy in Moneary Policy wih Privae Informaion. Journal of Moneary Economics. Kohn, D. L., Sack B., 2004. Cenral Bank Talk: Does I Maer and Why? In Macroeconomics, Moneary Policy, and Financial Sabiliy. Oawa: Bank of Canada, pp. 175-206. Padoa Schioppa, A., 1995. La Sicurezza Monearia e le Banche Cenrali. Bolleino Economico della Banca d'ialia. Raffery, M., Tomljanovich, M., 2002. Cenral Bank ransparency and Marke Efficiency: An Economeric Analysis. Journal of Economics and Finance. Reeves, R., Sawicki, M., 2007. Do Financial Markes Reac o Bank of England Communicaion? European Journal of Poliical Economy, 23(1): 207 27. Rosa, C., Verga G., 2007. On he consisency and effeciveness of cenral bank communicaion: Evidence from he ECB. European Journal of Poliical Economy, 23, pp. 146-175. Rossi, E., 1998. Trasparenza e Riservaezza in Poliiche Monearie Aninflazionisiche. Le Teorie e l'esperienza della Banca d'ialia. Rivisa di Poliica Economica. Svensson, L., 1995. Opimal Inflaion Targes, Conservaive Cenral Banks, and Linear Inflaion Conracs. NBER Working Paper. Winkler, B., 2000. Wha Kind of Transparency? On he Need for Clarify in Moneary Policy Making. ECB Working Paper. 21