Forecasting ECB Monetary Policy: Accuracy is (Still) a Matter of Geography

IMF Working Papers, February 1, 2006

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Monetary policy in the euro area is conducted within a multicountry, multicultural, and multilingual context involving multiple central banking traditions.
Research question: How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)?
Data: a database of surveys of professional ECB policy forecasters in 24 countries.

There are remarkable differences in forecast accuracy across forecasters.
Differences in forecast accuracy are partly related to:
- Geography and clustering around informational hubs.
- Country-specific economic conditions.
- Traditions of independent central banking in the past.
Much of the heterogeneity can be traced to differences in forecasting models.
Some systematic differences between analysts have been transitional and indicative of learning; others are more persistent.

Subjects: Banking, Central bank autonomy, Central bank policy rate, Central banks, Financial services, Industrial production, Inflation, Labor, Prices, Production, Unemployment.
Keywords: central bank, Central bank autonomy, Central bank policy rate, communication, consumer confidence, ECB, ECB activity, ECB behavior, ECB communication, ECB decision-making, ECB headquarters, ECB monetary policy decision, ECB policy change, ECB policy decision, ECB policy rate, expected ECB policy rate, forecast, geography, heterogeneity, history, Industrial production, Inflation, interest rate, learning, monetary policy, policy rate, survey data, systematic error, Taylor rule, transmission, Unemployment, WP.