A Paris Lodron University of Salzburg (PLUS) project, submitted by economists Paul Hofmarcher and Niko Hauzenberger, will receive funding from the Anniversary Fund of the the Oesterreichische Nationalbank (OeNB). In this project the investigators aim to study the transmission channels of central bank communication.

At a recent meeting of the decision committee of the Anniversary Fund, the OeNB pledged to fund 16 out of 48 applications, which were submitted by Austrian research institutes.  Among these successful applications is also a project from the PLUS, which examines the transmission channels of central bank communication and was submitted by the economists Paul Hofmarcher (principal investigator) and Niko Hauzenberger.

Price stability is one of the main goals of central banks. The primary instrument for achieving price stability is to alter the main refinancing rate. Alternatively, transparent communication strategies can also help to manage expectations of economic agents about inflation by informing them in a transparent manner about the future path of monetary policy under different macroeconomic outlooks or circumstances.  In this respect, a frequently mentioned textbook example is the “whatever it takes” statement of the former President of the European Central bank (ECB), Mario Draghi, in 2012, which was successful in calming financial markets.

In the literature, such open-mouth operations are commonly referred to as “forward guidance”. These unconventional monetary policy tools, which are complementary to conventional instruments, are commonly used when central banks are constrained by the zero lower bound on nominal interest rates, implying that the scope of conventional monetary policy is exhausted. In such situations, central banks often rely on forward guidance to credibly communicate their commitment to a certain future path of monetary policy.

In their project, Hofmarcher and Hauzenberger will analyse more than 16,000 speeches by European central bankers, using modern text mining techniques and combining them with state-of-the-art time series models. The aim of this project is both to measure the effects of forward guidance and to better understand the transmission channels of central bank communication on the financial and real economy.

Congratulations on this great success!