Michael Ehrmann

Michael Ehrmann
European Central Bank · Monetary Policy Research Division

PhD

About

152
Publications
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7,522
Citations

Publications

Publications (152)
Article
Central banks have intensified their communication with non-experts – an endeavour which some argue will fail. This paper studies English and German tweets about the ECB to show that its communication is received by non-experts, i.e. is not a road to nowhere. Following ECB communications, tweets often primarily relay information, become more factua...
Article
Inflation targeting is implemented in different ways – typically by adopting point targets, with or without tolerance bands, or by specifying target ranges. Using data for 20 economies (half of which are advanced and emerging market economies, respectively), this paper tests whether the various target types anchor inflation expectations differently...
Article
Household debt has played a central role in the global financial crisis, yet our understanding of it remains limited. We put U.S. household leverage in an international perspective, using household‐level data for the United States and 10 euro area economies. U.S. households have the highest prevalence of mortgage and consumer debt, hold comparative...
Article
The European Systemic Risk Board is charged with the macroprudential oversight of the financial system in the European Union. We compare and contrast the ESRB with the U.S. National Transportation Safety Board, which some scholars proposed as a role model for systemic risk management. There are parallels and some differences between these organisat...
Article
Central banks have used different types of forward guidance. This paper reports cross-country evidence showing that, in general, forward guidance mutes the response of government bond yields to macroeconomic news. However, calendar-based guidance with a short horizon counter-intuitively raises it. Using a stylized model where agents learn from mark...
Article
Central banks often draft press releases announcing monetary policy decisions starting from the previous release. This makes it straightforward to see how the content has evolved, but may make substantial updates harder to interpret, as markets learn to expect only minor updates. Using variation in the drafting process at the Bank of Canada, this p...
Article
This paper analyzes stock market trading in 15 countries during the 2010 and 2014 soccer FIFA World Cups. We find evidence for substantial investor inattention during these major sporting events. The lack of attention for the trading pit is particularly large when the national soccer team is competing, with traded volumes declining by as much as 48...
Article
This paper provides novel evidence on the role of the macroeconomic environment for households’ choice between fixed-interest-rate and adjustable-interest-rate mortgages (ARMs) in the euro area. We find that relatively more ARMs are taken out when economic growth is strong, the interest rate spread is high, or unemployment shows low volatility. A s...
Article
This paper studies to what extent the experiences of households shape their willingness to take financial risks. It starts by extending the U.S. evidence of Malmendier and Nagel (2011) to euro area households, and shows that experienced stock market returns matter in a statistically significant and economically substantial fashion: better experienc...
Article
The paper analyzes the integration of euro area sovereign bond markets during the European sovereign debt crisis. It tests for contagion (i.e., an intensification in the transmission of shocks across countries), fragmentation (a reduction in spillovers) and flight-to-quality patterns, exploiting the heteroskedasticity of intraday changes in bond yi...
Article
The end result of major sporting events has been shown to affect next day stock returns through shifts in investor mood. By studying intraday data during the soccer matches that led to the elimination of France and Italy from the 2010 FIFA World Cup, we test whether mood-related pricing effects already materialize as events unfold. We use data for...
Article
We examine recent changes in monetary policy due to the financial crisis and ask whether they are likely to be temporary or permanent. We present evidence from two original surveys - one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to h...
Article
Inflation targeting (IT) had originally been introduced as a device to bring inflation down and stabilize it at low levels. Given the current environment of persistently weak inflation in many advanced economies, IT central banks must now bring inflation up to target. This paper tests to what extent inflation expectations are anchored in such circu...
Article
This paper studies consumers’ inflation expectations using micro-level data from the University of Michigan’s Surveys of Consumers. It shows that beyond the well-established socioeconomic factors such as income, age, or gender, inflation expectations are also related to respondents’ financial situation, their purchasing attitudes, and their expecta...
Article
This paper studies consumers' inflation expectations using micro-level data from the Surveys of Consumers conducted by University of Michigan. It shows that beyond the well-established socio-economic factors such as income, age or gender, other characteristics such as the households' financial situation and their purchasing attitudes are important...
Article
The paper analyzes the integration of euro area sovereign bond markets during the European sovereign debt crisis. It tests for contagion (i.e., an intensification in the transmission of shocks across countries), fragmentation (a reduction in spillovers) and flight-to-quality patterns, exploiting the heteroskedasticity of intraday changes in bond yi...
Article
This paper studies the determinants of the euro exchange rate volatility during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fun...
Article
We analyze the transmission of the 2007 to 2009 financial crisis to 415 country-industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the U.S. and the global financial sector, the ef...
Article
This paper studies the formation of consumers’ inflation expectations using micro-level data from the Michigan Survey. It shows that beyond the well-established socio-economic determinants of inflation expectations like gender, income or education also other characteristics like the household’s financial situation and its purchasing attitudes matte...
Article
The end result of major sporting events has been shown to affect next day stock returns through shifts in investor mood. By studying intraday data during the soccer matches that led to the elimination of France and Italy from the 2010 FIFA World Cup, we test whether mood-related pricing effects already materialize as events unfold. We use data for...
Article
We analyze the transmission of the financial crisis of 2007 to 2009 to 415 country-industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the U.S. and the global financial sector, the...
Article
The paper asks whether members of central bank decision-making committees should communicate with the public in a collegial manner, by conveying the consensus or majority view of the committee, or in an individualistic way, by providing the diversity of views among the committee members. It finds that more active as well as more consistent communic...
Article
Full-text available
This paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals....
Article
We study the determinants of trust in the European Central Bank (ECB) as measured by the European Commission's Eurobarometer survey, in particular during the global financial crisis and the European sovereign debt crisis. We find that the fall in trust in the ECB in crisis times can be rather well explained based on the pre‐crisis determinants. We...
Article
Against the background of the current debate about fiscal sustainability in several advanced economies, this paper estimates the determinants of sovereign bond spreads of the G7 countries, using high-frequency proxies for market expectations about macroeconomic fundamentals. It allows for time-varying parameters and stochastic volatility as well as...
Article
We study the determinants of trust in the ECB as measured by the European Commission's Eurobarometer survey. The formulation of the corresponding question in this survey is very general, and compatible with very different notions of "trust" by respondents. In particular, the survey does not ask whether respondents trust that the ECB delivers on its...
Article
How do financial markets incorporate news? This paper argues that one piece of news not only has direct effects on asset prices and market volatility, but it can also alter the relative importance of other news. Studying the reaction of UK short-term interest rates to the Bank of England's Inflation Report and to macroeconomic announcements, this p...
Article
Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect a...
Article
In response to the financial crisis of 2007–10, many central banks have been given responsibility for macroprudential supervision. This paper argues that central bank communication will play a central role for that purpose, and makes the point that it should be generally geared towards clarity, transparency and predictability, in order to enhance t...
Article
Using the 2007-09 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. We find statistically significant evidence of contag...
Article
At the 2010 FIFA World Cup in South Africa, many soccer matches were played during stock market trading hours, providing us with a natural experiment to analyze fluctuations in investor attention. Using minute‐by‐minute trading data for fifteen international stock exchanges, we present three key findings. First, when the national team was playing,...
Article
At the 2010 FIFA World Cup in South Africa, many soccer matches were played during stock market trading hours, providing us with a natural experiment to analyze fluctuations in investor attention. Using minute-by-minute trading data for fifteen international stock exchanges, we present three key findings. First, when the national team was playing,...
Article
The paper shows that there is a substantial degree of heterogeneity in the ability of Fed watchers to forecast US monetary policy decisions. Based on a novel database for 268 individual professional forecasters since 1999, the average absolute forecast error of FOMC decisions varies 5-10 basis points between the best and worst-performers across the...
Article
Central banks regularly communicate about financial stability issues, by publishing Financial Stability Reports (FSRs) and through speeches and interviews. The paper asks how such communications affect financial markets. Building a unique dataset, it provides an empirical assessment of the reactions of stock markets to more than 1000 releases of FS...
Article
Full-text available
How and why do politicians' preferences about monetary policy differ from the interest rates set by independent central banks? Looking at the European Central Bank (ECB), this paper shows that politicians, on average, favor significantly lower interest rates. Three factors explain the different preferences. First, politicians put relatively less we...
Article
Full-text available
In response to the financial crisis of 2007-2010, many central banks are getting involved in macroprudential supervision. Central bank communication will constitute a central policy tool for that purpose. The paper asks how such communication will affect financial markets, exploiting the fact that many central banks have had some financial stabilit...
Article
This paper analyses the evolution of inflation and of consumers' inflation perceptions in the aftermath of the euro cash changeover. It finds that the cross-country variation of food product inflation was dependent on the complexity of conversion rates, with statistically significant and economically sizeable effects especially for low-priced items...
Article
The financial crisis of 2007-2009 has triggered a major overhaul of microprudential and macroprudential regulation and supervision around the globe. This reform process often assigns central banks a prominent role, in micro- and especially in macro-prudential supervision. How should central banks deal with this added responsibility? On the one hand...
Article
Forecasts are an inherent part of economic science and the quest for perfect foresight occupies economists and researchers in multiple fields. The release of economic forecasts (and its revisions) is a popular and often publicized event, with a multitude of institutions and think-tanks devoted almost exclusively to that task. The European Central B...
Article
The paper analyses the transmission of US monetary policy shocks to global equity markets and the macroeconomic determinants of the underlying transmission process. We show that there is a substantial cross-country heterogeneity in reactions across 50 equity markets worldwide, with returns falling on average around 2.7% in response to a 100 basis p...
Article
In this paper we assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, we use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, we employ tests that account for specific pr...
Article
Full-text available
The question of how best to communicate monetary policy decisions remains a highly topical issue among central banks. Focusing on the experience of the European Central Bank, this paper studies how explanations of monetary policy decisions at press conferences are perceived by financial markets. The empirical findings show that ECB press conference...
Article
Full-text available
Why has the current financial crisis spread so violently across countries and economic sectors? Could this global dimension have been foreseen, or are we observing a novel transmission pattern? Focusing on the transmission to about 450 industry equity portfolios across 64 countries, the paper finds that equity portfolios with a high degree of integ...
Chapter
Since the early 1990s, communication has become a primary tool for monetary authorities in managing expectations, both of financial markets and of the wider public, and an important ingredient in making the central bank accountable. The rapidly growing literature on central bank communication clearly confirms the importance of communication in mana...
Article
Full-text available
We study the functioning of secured and unsecured interbank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007–09 financial crisis. Interest rates decouple across secured and unsecured markets following an adverse shock to credit risk. The scarcity of underlying colla...
Article
Full-text available
In this paper we assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, we use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, we employ tests that account for specific pr...
Article
Full-text available
Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication—mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communicat...
Article
Despite substantial differences in monetary policy and communication strategies, many central banks share the practice of purdah, a self-imposed guideline of abstaining from communication around policy meetings or other important events. This practice is remarkable, as it seems to contradict the virtue of transparency by requiring central banks to...
Article
Full-text available
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...
Article
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...
Article
This paper explores whether there are systematic patterns as to when members of the decision-making committees of the Federal Reserve, the Bank of England and the European Central Bank communicate with the public, and under what circumstances such communication has the ability to move financial markets. The findings suggest that communication is ge...
Article
Full-text available
We build a stylised 12-country model of the euro area and use it to analyse how differences in national inflation and growth rates arise within the European Economic and Monetary Union (EMU). We find that the main source of differentials in the early years of the EMU have been aggregate demand shocks, followed by cost-push shocks; euro exchange rat...
Article
Full-text available
We study the convergence of European bond markets and the anchoring of inflation expectations in euro area countries using high-frequency bond yield data for France, Germany, Italy and Spain. We find that Economic and Monetary Union (EMU) has led to substantial convergence in euro area sovereign bond markets in terms of interest rate levels, uncond...
Article
Full-text available
This paper provides an assessment of central bank transparency for the efficiency of monetary policy implementation, using the introduction of balance-of-risks assessments by the Federal Reserve as a testing device. We find that markets anticipated monetary policy decisions equally well under this new disclosure regime as before, but arrived at the...
Article
The paper assesses the communication strategies of the Federal Reserve, the Bank of England, and the European Central Bank and their effectiveness. We find that the effectiveness of communication is not independent from the decision-making process. The paper shows that the Federal Reserve has been pursuing a highly individualistic communication str...
Article
Full-text available
The paper shows that there is a substantial degree of heterogeneity in the ability of Fed watchers to forecast US monetary policy decisions. Based on a novel database for 268 professional forecasters since 1999, the average forecast error of FOMC decisions varies 5 to 10 basis points between the best and worstperformers across the sample. This hete...
Article
Full-text available
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...
Article
This paper provides a summary of current knowledge on inflation persistence and price stickiness in the euro area, based on research findings that have been produced in the context of the Inflation Persistence Network. The main findings are: i) Under the current monetary policy regime, the estimated degree of inflation persistence in the euro area...
Article
The paper provides SVAR estimates for the UK, Canada, Sweden and Denmark, making explicit a monetary policy reaction function and taking account of exchange rate targeting practices. It examines the role of the exchange rate as shock-absorber as opposed to a source of its own, and destabilizing, shocks. We find that in all countries but the UK, rea...