A European Central Bank working paper introduces a measure of how major investment bank analysts interpret Governing Council monetary policy decisions and finds that unexpected hawkish interpretations are followed by tighter financial conditions and weaker euro area activity, prices and employment. The measure captures changes in policy tone between analysts’ preview and recap reports, after removing revisions associated with their assessments of inflation and economic activity. Using GPT-4.1, the authors analyzed reports from six banks covering 105 Governing Council event months between July 2011 and March 2025. Hawkish interpretation shocks were followed by higher short and medium-term overnight index swap rates and a delayed euro appreciation, while their macroeconomic effects were broadly comparable in direction and scale to standard interest rate shocks. The shocks were only weakly to moderately correlated with market-based measures of policy surprises, suggesting that analysts’ interpretation and contextualization contain additional information about the policy stance and likely future path. The paper does not identify a causal effect from publishing analyst reports. Rather, it finds that the interpretations contained in those reports are associated with subsequent financial and macroeconomic changes, highlighting how market participants’ understanding of central bank communication can form part of monetary policy transmission.
European Central Bank working paper links analysts’ interpretation of policy communication to market pricing and economic outcomes
A European Central Bank working paper finds that unexpected hawkish interpretations of Governing Council communication are followed by higher market rates and declines in euro area activity, prices and employment. Its GPT-based measure compares major banks’ preview and recap reports and captures information that is not fully reflected in standard market-based policy surprises.