Cacophony in Central Banking? Evidence from euro area speeches on monetary policy

Transparent communication is a prerequisite for delivering an effective monetary policy. In this
paper, we examine over 3000 speeches from central bankers to investigate the topics euro area
national banks and the ECB most frequently talk about. Text-based ideal point analysis enables
us to estimate for each central bank a measure of its ideological position, which is based on
differences in the tone they use to talk about the identified topics. As far as we are aware this
methodology has not been applied in the present context. Our results are fourth-fold: Firstly,
price stability and financial stability communication lie at the core of central bank communication
in the euro area. Second, the ECB’s ideal points tend to lie systematically above that of other
euro area national banks, which suggests differing outstanding, ideological position. This
implies that we cannot think of the ECB’s ideal point as being formed by the ideological positions
of its member states. Third, we observe variability in member states’ ideal points over time,
whereas the ECB’s ideal point is rather stable. The latter finding suggests remarkable
consistency in the ECB’s communication strategy through both normal and crisis times. Finally,
in a VAR setting, we find that changes in ideological positions impact longer-run macroeconomic
expectations.