In order to assess the importance of monetary and financial developments for key macroeconomic variables in the euro area a money demand system for M3 is estimated adopting a structural cointegrating VAR approach. While maintaining a good statistical representation of the data, long-run relationships are based on economic theory. By using generalized response profiles the dynamics of the money demand system is investigated without any further identifying assumptions. Error bounds of the profiles are derived using bootstrap simulations.

4Non-technical summary 5 1 Introduction 72 Some institutional features of ECB monetary policy announcements and communication 103 Extracting news from the money market yield curve 11 Principal components 12 Recursive regressions 133.3 Separate decision and communication windows 13 Jobless claims 144 Evolution of monetary policy news over time 14 Main results 14 Interpreting specific events 155 Impact of monetary policy news on longer-term yields 17 Conclusions 18References 19 26European Central Bank Working Paper Series 34 Appendix Figures and tables AbstractWe analyse high-frequency changes in the euro area money market yield curve on dates when the ECB regularly sets and communicates decisions on policy interest rates to construct different indicators of monetary policy news relating to policy decisions and to central bank communication. The indicators show that ECB communication during the press conference may result in significant changes in market expectations of the path of monetary policy. Furthermore, our results suggest that these changes have a significant and sizeable impact on medium to long-term interest rates. Keywords Non-technical summaryTo underpin their commitment to low and stable inflation, central banks have sought to improve the transparency of their monetary policy strategies through -among other important elements -appropriate communication with financial markets and the public. Central bank communication has thus become a key element in contributing to stabilise expectations as to how the central bank responds to changes in the state of the economy.We construct multi-dimensional indicators of monetary policy news which capture information relating to monetary policy decisions and communication at different maturity horizons. In particular, we analyse high-frequency changes in money market rates during days when the Governing Council of the European Central Bank (ECB) decides on policy interest rates and -in the context of its regular press conference taking place shortly afterwards -explains this decision to the public. The indicators that we construct relate not only to the extent to which current policy decisions have been anticipated, but also to the extent to which expectations of the path of monetary policy have been revised as a result of communication that accompanies the decision. Having constructed several multidimensional indicators of monetary policy news we use them to analyse the impact of policy action and communication on expectations of the level of interest rates at various time horizons. Measuring the impact of monetary policy news on the nominal yield curve is useful in assessing the success of a central bank in managing expectations about future policy rates and in analysing the financial market participant's understanding of the central bank's intentions.Our study adds to the empirical literature on central bank communication in two important ways: First, the use of intraday data together with the institutional feature that the ECB announces and explains po...

4Non-technical summary 5 1 Introduction 72 Some institutional features of ECB monetary policy announcements and communication 103 Extracting news from the money market yield curve 11 Principal components 12 Recursive regressions 133.3 Separate decision and communication windows 13 Jobless claims 144 Evolution of monetary policy news over time 14 Main results 14 Interpreting specific events 155 Impact of monetary policy news on longer-term yields 17 Conclusions 18References 19 26European Central Bank Working Paper Series 34 Appendix Figures and tables AbstractWe analyse high-frequency changes in the euro area money market yield curve on dates when the ECB regularly sets and communicates decisions on policy interest rates to construct different indicators of monetary policy news relating to policy decisions and to central bank communication. The indicators show that ECB communication during the press conference may result in significant changes in market expectations of the path of monetary policy. Furthermore, our results suggest that these changes have a significant and sizeable impact on medium to long-term interest rates. Keywords Non-technical summaryTo underpin their commitment to low and stable inflation, central banks have sought to improve the transparency of their monetary policy strategies through -among other important elements -appropriate communication with financial markets and the public. Central bank communication has thus become a key element in contributing to stabilise expectations as to how the central bank responds to changes in the state of the economy.We construct multi-dimensional indicators of monetary policy news which capture information relating to monetary policy decisions and communication at different maturity horizons. In particular, we analyse high-frequency changes in money market rates during days when the Governing Council of the European Central Bank (ECB) decides on policy interest rates and -in the context of its regular press conference taking place shortly afterwards -explains this decision to the public. The indicators that we construct relate not only to the extent to which current policy decisions have been anticipated, but also to the extent to which expectations of the path of monetary policy have been revised as a result of communication that accompanies the decision. Having constructed several multidimensional indicators of monetary policy news we use them to analyse the impact of policy action and communication on expectations of the level of interest rates at various time horizons. Measuring the impact of monetary policy news on the nominal yield curve is useful in assessing the success of a central bank in managing expectations about future policy rates and in analysing the financial market participant's understanding of the central bank's intentions.Our study adds to the empirical literature on central bank communication in two important ways: First, the use of intraday data together with the institutional feature that the ECB announces and explains po...

4Non-technical summary 5 1 Introduction 72 Some institutional features of ECB monetary policy announcements and communication 103 Extracting news from the money market yield curve 11 Principal components 12 Recursive regressions 133.3 Separate decision and communication windows 13 Jobless claims 144 Evolution of monetary policy news over time 14 Main results 14 Interpreting specific events 155 Impact of monetary policy news on longer-term yields 17 Conclusions 18References 19 26European Central Bank Working Paper Series 34 Appendix Figures and tables AbstractWe analyse high-frequency changes in the euro area money market yield curve on dates when the ECB regularly sets and communicates decisions on policy interest rates to construct different indicators of monetary policy news relating to policy decisions and to central bank communication. The indicators show that ECB communication during the press conference may result in significant changes in market expectations of the path of monetary policy. Furthermore, our results suggest that these changes have a significant and sizeable impact on medium to long-term interest rates. Keywords Non-technical summaryTo underpin their commitment to low and stable inflation, central banks have sought to improve the transparency of their monetary policy strategies through -among other important elements -appropriate communication with financial markets and the public. Central bank communication has thus become a key element in contributing to stabilise expectations as to how the central bank responds to changes in the state of the economy.We construct multi-dimensional indicators of monetary policy news which capture information relating to monetary policy decisions and communication at different maturity horizons. In particular, we analyse high-frequency changes in money market rates during days when the Governing Council of the European Central Bank (ECB) decides on policy interest rates and -in the context of its regular press conference taking place shortly afterwards -explains this decision to the public. The indicators that we construct relate not only to the extent to which current policy decisions have been anticipated, but also to the extent to which expectations of the path of monetary policy have been revised as a result of communication that accompanies the decision. Having constructed several multidimensional indicators of monetary policy news we use them to analyse the impact of policy action and communication on expectations of the level of interest rates at various time horizons. Measuring the impact of monetary policy news on the nominal yield curve is useful in assessing the success of a central bank in managing expectations about future policy rates and in analysing the financial market participant's understanding of the central bank's intentions.Our study adds to the empirical literature on central bank communication in two important ways: First, the use of intraday data together with the institutional feature that the ECB announces and explains po...

Using a wide range of models we document a protracted fall in the natural (or neutral) rate of interest in advanced economies, driven by ageing, waning productivity growth, a rise in mark-ups, and a surge in risk aversion in the wake of the global financial crisis. While our neutral rate estimates are highly uncertain and model dependent, most of them have been negative in the wake of the financial crisis. This observation is highly relevant for assessing the monetary policy stance and the risk of monetary policy becoming constrained by the lower bound on nominal interest rates. We highlight model dependence of natural rate estimates by illustrating large differences in their stabilising properties, depending on the context chosen. We also emphasise high statistical uncertainty of natural rate estimates within models. Looking ahead, a return to higher levels would have to come from a reversal in risk aversion and flight to safety and a boost in productivity. To achieve this, structural reforms are crucial.