پیش بینی سیاست های پولی بانک مرکزی اروپا: بررسی دقت یک موضوع از نظر جغرافیایی

Monetary policy in the euro area is conducted within a multi-country, multi-cultural, and multi-lingual context. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that these have important repercussions on market behaviour. Explaining the differences in forecast accuracy, we provide evidence that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions. In large part this heterogeneity can be traced to differences in forecasting models.

Monetary policy in the euro area is conducted within a multi-country, multi-cultural, and multi-lingual context. With the formation of the European Economic and Monetary Union (EMU), countries with markedly different histories of inflation, monetary policy strategies, and central banking traditions, delegated the conduct of monetary policy to a single entity—the European Central Bank (ECB). Since this transition, questions that have come to the fore include whether economic agents in different member countries have been able to adjust and understand equally well the European perspective of monetary policy? To what extent are expectations about monetary policy still influenced by different national and cultural backgrounds? Moreover, to what extent may differences in the ability to forecast monetary policy decisions reflect more permanent information asymmetries related to geographic proximity to the ECB, and country-specific factors? While random heterogeneity in forecasts will characterize many uncertain environments, the presence of systematic heterogeneity is important from a policy perspective. Expectations are a crucial transmission channel for monetary policy, and systematic heterogeneity linked, for instance, to geographical factors can imply that monetary policy in the euro area exerts differential effects in the various EMU countries. Furthermore, systematic differences in expectations among financial market participants imply that their trading behaviour differs, thus leading to heterogeneous investment profitability. Furthermore, a systematically different perception of the ECB's monetary policy could prompt country-specific political controversy about the ECB's role. This paper analyzes the ability of economic agents in EMU and non-EMU countries to forecast monetary policy decisions by the ECB. In particular, we investigate to what extent expectations are related to geographic location of forecasters and country-specific characteristics. We develop a novel database of monetary policy expectations by 120 financial institutions in 24 countries between 1999 and 2005. The data stem from surveys conducted by Reuters, and provide information on the expected ECB policy rate for the upcoming Governing Council meeting, the probability distribution around forecasters’ point estimates, as well as their expectations about the timing of future monetary policy moves. The survey responses accurately represent forecasters’ expectations for two reasons. First, they are generally in the public domain, which implies that they must be in line with the recommendations given by the institutions to their clients. Second, as most institutions participate regularly, clients have the possibility to evaluate the respective forecasting performance of the various institutions. We find that differences in forecast accuracy are substantial, as the top 10% of all institutions have a forecast error that is on average 8 basis points smaller than the error made by the worst 10% of performers. These differences are significant in economic terms, both from a financial market perspective and from a policy point of view, reaching a level of about one-third of the typical ECB policy rate change of 25 basis points during the sample period. Furthermore, they have repercussions on actual trading behaviour, as larger heterogeneity in market expectations causes an increase in volatility in asset prices following the announcement of monetary policy decisions. What explains this large heterogeneity in anticipating ECB monetary policy decisions? A first result of our empirical analysis is that geography matters for forecast accuracy. There is a surprising amount of cross-country variance in expectations about ECB policy rates. But the pattern of forecast accuracy exceeds the concept of nationality. Frankfurt, which hosts the ECB headquarters and the German Bundesbank (one of the euro area's National Central Banks and, arguably, one of the ECB's early role models), also is Germany's financial centre. Being close to this informational hub tends to improve forecast accuracy of forecasters. The advantage of being located in an informational hub is corroborated by equivalent results for forecasters based in London/UK or working for institutions with a subsidiary in the City. We find furthermore that national macroeconomic conditions tend to influence forecast accuracy, as deviations of national inflation from the euro area average affect the quality of forecasts. Forecasters in countries with higher (lower) than euro area inflation tend to produce more hawkish (dovish) forecasts, suggesting that the national inflation environment biases forecasters’ views of ECB monetary policy. We also show that the observed heterogeneity is systematic rather than based on differences in the judgmental component among forecasters. To extract the systematic component from observed predictions, we estimate for each bank the implied ECB reaction function underlying its interest rate forecasting model. These Taylor-type rules, which tend to be different across institutions, capture a significant part of the underlying structure of the published forecast. To our knowledge, the focus on explaining the heterogeneity in monetary policy expectations is novel. It relates to earlier literature on the differences in the transmission of the ECB's monetary policy. In the run-up to EMU, several papers asked whether a change in policy rates would affect national economies in a heterogeneous fashion, possibly due to differences in expectations (Dornbusch et al., 1998; Cecchetti, 2001; Mihov, 2001). However, results are contradictory across studies (Mojon and Peersman, 2003). Evidence using data obtained under EMU is scarce, for the most part because long time samples are needed to estimate the full transmission path from interest rates to inflation. Accordingly, the few studies available analyze only elements of the transmission process (e.g., Angeloni and Ehrmann, 2003). No study has yet been conducted on the homogeneity of interest rate expectations in the euro area, and this is where the present paper attempts to contribute. In addition, our work is broadly related to the literature on trade in goods and in financial assets, as well as the literature on home bias in the allocation of financial portfolios. For instance, there is substantial empirical evidence that information asymmetries and information frictions are fundamental in explaining trade in goods and financial assets as well as financial investment decisions (e.g. Froot and Stein, 1991; Gordon and Bovenberg, 1996; Portes et al., 2001; Hau, 2001; Dvorak, 2005). Such information asymmetries can take various forms and can be related to language, cultural ties, common legal origins, and institutions, among others. As the literature on home bias and capital flows emphasizes, information is also a key factor inhibiting “optimal” investment decisions based on portfolio theory. Moreover, location decisions by financial firms point to the importance of information-based agglomeration effects. Even though centrifugal factors in the sense of Krugman (1998) exist—for instance, the need to be close to locally dispersed customers—and advances in communication technology continue to lower transaction costs, centripetal forces seem to matter more in the financial services (Tschoegl, 2000; Clark, 2002; Cook et al., 2007). In particular, geographic proximity and common socio-cultural attitudes remain key when it comes to the realization of information spillovers and economies of scale in information processing (Thrift, 1994; Grote, 2004). Faulconbridge (2004, p. 237) counts “face-to-face contact facilitated by social proximity” among the arguments why financial companies agglomerate in international financial centres. More generally, Strauss-Kahn and Vives (2005) show that firms tend to locate their headquarters preferably in close vicinity to other headquarters in the same sector of activity. Another related strand of the literature emphasizes that investors are more profitable when investing in firms that are located in geographic proximity. For instance, Coval and Moskowitz, 1999 and Coval and Moskowitz, 2001 show that mutual fund managers earn significantly more on investments in firms with headquarters located geographically near to the mutual fund's offices. The present paper suggests that information asymmetries and agglomeration effects along these lines might also influence the quality of forecasting of ECB monetary policy. Finally, our results are linked to the literature on the importance of location for the quality of financial markets forecasts—but there are also important differences. Bae et al. (2008) provide international evidence for a significant advantage of local analysts even when controlling for the quality of information provided by firms, and Malloy (2005) shows that within the US equity analysts perform better when investing in firms located in close geographic proximity. But these findings may not necessarily extend to the domain of monetary policy forecasting in the case of a large cross-national currency union. Financial analysts are said to profit from geographic proximity because of similarities in culture, language, closeness to local market conditions in which firms operate, and potentially better links to decision makers (e.g. Malloy, 2005). In contrast to a typical firm, however, the ECB does not have a predominantly national character. Instead, it is a very international institution focusing on the euro area in its entirety. In addition, national central banks, located in each member country, take part in all monetary policy decisions, which should further reduce the relative advantage of ECB watchers located in the proximity of Frankfurt. In that sense, our result that geography matters also in the context of monetary policy is indeed surprising. Our findings have important policy implications. The results indicate that the ECB operates in an environment where economic agents have yet to converge on a common expectation-formation process when it comes to monetary policy. This heterogeneity is systematically related to differences in forecasting models, significant in size, and closely related to geographic and country-specific factors. Given the importance of expectations for the transmission of monetary policy, continued heterogeneity along these lines might prove problematic. Furthermore, a systematically different perception of the ECB's monetary policy could prompt country-specific political controversy. One implication of these findings is that there is room for policies that foster the convergence to a common expectation-formation process, for instance through careful and targeted central bank communication. The remainder of the paper is organized as follows. Section 2 presents our dataset based on the Reuters survey as well as some key stylized facts of these data. The analysis of the determinants of differences in forecasting abilities across forecast institutions, distinguishing between geography and country-specific economic conditions, is presented in Section 3. Section 4 decomposes these forecast errors into systematic and unsystematic components, and tests whether country-specific economic conditions lead to a forecast bias. Section 5 summarizes the main findings and discusses policy implications.

EMU has implied the assignment of monetary policy making for multiple countries with varying histories of inflation, policy strategies, and economic environments to the ECB. Monetary policy is now conducted taking a euro area-wide perspective, but it operates in a multi-country, multi-cultural, and multi-lingual context. This raises a number of issues: How does this heterogeneity of conditions and backgrounds in member countries affect the ability of economic agents to understand and anticipate monetary policy by the ECB? Is there convergence in the views how the ECB conducts monetary policy? Or are the differences in the ability to anticipate the ECB's decisions indicative of more permanent information asymmetries related to geographic proximity and country-specific factors? Using a novel database on the forecasts of ECB policy decisions of 120 financial institutions in 24 countries since 1999, we find some marked differences in their ability to understand and anticipate policy decisions by the ECB. The paper shows that these differences have repercussions on financial markets, as heterogeneity in market expectations affects the volatility of asset prices in response to the announcement of monetary policy decisions. Dissecting the differences in forecast ability, the paper finds that a substantial part is systematically explained by geography and country-specific economic conditions. We find that financial institutions that are based in Frankfurt, or have a subsidiary in Frankfurt, perform substantially better in predicting ECB policy decisions. A similar informational advantage also appears to be at play for institutions based in the City of London. This suggests that information asymmetries and agglomeration effects play a role in the ability of forecast institutions to anticipate monetary policy in the euro area. This finding is in line with an earlier literature that analyses the reasons for the existence of international financial centres, and which argues that face-to-face contacts among financial market actors are facilitated by proximity, and are an essential factor in knowledge production and thus performance. Country-specific economic conditions are also relevant, with the accuracy of forecasts depending on the levels of inflation in the institutions’ host countries. Forecasters in countries with higher (lower) than euro area inflation tend to produce more hawkish (dovish) forecasts, suggesting that the national inflation environment biases forecasters’ views of ECB monetary policy. Finally, we find that most of the heterogeneity in forecasting performance can be related to different models of ECB behaviour. Our results have important policy implications. Expectations are a crucial factor in the transmission of monetary policy. And a central bank operating in a heterogeneous environment such as the ECB needs to be aware of differences in the ability of economic agents to understand and anticipate monetary policy—differences that appear to be significant in the case of the euro area. Furthermore, a systematically different perception of the ECB's monetary policy could prompt country-specific political controversy about the ECB's role. The paper suggests that euro area financial markets have yet to converge on a homogeneous view of the ECB, to overcome locational and national biases, and to adopt a common expectation-formation process. Although some informational frictions and asymmetries or agglomeration effects may be a permanent feature of financial activity in any region, there seems to be scope for continuous guidance of this convergence process by a careful and targeted communication policy of the central bank. There are multiple avenues for further research. A first extension would be to explore likely links between ECB communication and expectations on ECB policy. For instance, it could be asked whether communication in the form of speeches or interviews, perhaps targeted at particular audiences within EMU, is helpful in reducing systematic heterogeneity of expectations. A related question is whether certain forms of ECB communication are more likely to focus the attention of regional audiences than others. A second area for future research is to broaden the focus in two ways. First, it would be interesting to extend the forecast horizon; second, understanding the extent to which heterogeneity in expectations and perceptions of monetary policy is present not only among financial market participants, but also among the general public is of crucial importance for central banks.