Non-standard policy measures are intended to work via financial markets. Their effectiveness thus depends on how ECB communication affects the expectations of market participants far into the future. Communication has become as important as the details of the policy measures itself. The success of communication is often measured by short term market reactions, increasingly using advanced statistical techniques to interpret them. But this ‘policy making by the markets’ lacks a strong anchor because financial markets often anticipate policy and the assessments of investors change all the time, often independently of monetary policy actions.
This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.