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111 - Information from the European central banks often contradictory

18 October 2006

Everyone has an opinion about the euro. When the euro was first introduced, after converting back to their original currency, people often came to the conclusion that life had become a lot more expensive. Whether that is true or not is left unresolved by David-Jan Jansen’s PhD research, but he does conclude that the communications about monetary policy by representatives of the central banks after the introduction of the euro were definitely ambiguous. ‘They sent out contradictory signals about interest, inflation and economic growth. They also tried to talk up the exchange rate of the euro as much as they could. Incidentally, they weren’t very successful with that.’ David-Jan Jansen will defend his PhD thesis on 26 October 2006 at the University of Groningen.

Until well into the 1990s, the European central banks hardly bothered at all about communication. All that changed after the European Economic and Monetary Union was set up in 1999. Then the representatives of the new European Central Bank and the national central banks decided that the financial markets needed to be better informed about their policy. However, the news reports from the financial news service Bloomberg reveal that they very often were not saying the same thing. David-Jan Jansen: ‘In particular, the comments about short-term interest rates, future inflation and economic growth were contradictory. That’s difficult for the financial markets, because expectations about policy decisions are usually made on the basis of these comments. The predictability of what the interest rate is going to do, for example, can decline sharply if the central banks make contradictory remarks about it. We’ve even had situations where one banker suggested that the interest rate would stay constant while others reported that it would go up or even down.’

Bundesbank a major influence

The differences in communication are a result of the European situation wherein bankers from different countries and cultures play a role, according to Jansen. ‘You can see that bankers from one country deal with communication completely differently to their colleagues from another. It became obvious, for example, that comments by representatives of the Bundesbank were quoted much more frequently in news reports than those of other banks. In the period just after the introduction of the euro, no-one knew quite what to expect from the European Central Bank. The Bundesbank had a solid reputation and thus their comments continued to be trusted for a long time. And quite rightly too; with hindsight we can see that the Bundesbank was right more often than not. Their comments could often be used to make predictions.’

Contradictory comments

The model that he constructed to link the communications between 1999 and 2002 and the interest decisions of the ECB during the same period did not produce the results Jansen had expected. ‘I wanted to explain interest rate shifts using the comments that had been made. That turned out to be difficult, probably partly due to the contradictory comments. I’m currently investigating that further.’

Exchange rate image problem

The period that Jansen investigated was also characterized by a strong fall of the euro against the dollar. ‘In reaction to this, the central banks tried to talk up the euro exchange rate by saying that it was undervalued and would certainly climb in relation to the dollar. The low exchange rate was also a bit of an image problem for the banks. These comments had hardly any effect on the exchange rate of the euro, however. You can see that they are much more careful nowadays. It’s been a learning process. The president of the European Central Bank now plays a much more significant role in communications about the exchange rate of the euro. In addition, the signals have become more unambiguous. Nevertheless, you still see that representatives from the various countries all have a different way of communicating – this has not so much to do with national interests as with background and culture.’

Curriculum Vitae

David-Jan Jansen (26 September 1979, Almelo) studied general economics at the University of Groningen. He carried out his PhD research at the Academic Research department of the Nederlandsche Bank. His research was financed by the Nederlandsche Bank. Jansen will be awarded his PhD on 26 October by the Faculty of Economics. His supervisor is Prof. J. de Haan. The title of his thesis is Communication by euro area central bankers: structure, information and effectiveness.

Note for the press

David-Jan Jansen, tel. 020-5243170 (work), 030-2883866 (home),,

Last modified:15 September 2017 3.23 p.m.

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