, a. t., f. m. natalucci and j. m. piger ( 2004 ), “ explicit inflation objectives and macroeconomic outcomes ”, ecb working paper, no 383. see also johnson, d. ( 2002 ), “ the effect of inflation targeting on the behaviour of expected inflation : evidence from an 11 country panel ”, journal of monetary economics 49, pp. 1521 - 1538. benati, l. ( 2008 ), “ investigating inflation persistence across monetary regimes ”, quarterly journal of economics, 123 : 3, august 2008, 1005 - 1060. for instance, estimates of the inflation persistence in the euro area fell by around two - thirds from the period before ( until the bretton woods arrangement ) and after the launch of emu. ultimate objectives of policy and expectations. both a fed board case study on the united kingdom and sweden, and an ecb study on the euro area show that market - based inflation expectations for these countries are generally unresponsive to macroeconomic news, a sign that they tend to remain unperturbed when the economic environment changes. 8 communication about actions and prospects the adoption of a clear and deliberate monetary policy strategy has added two further dimensions to communication : the announcement and explanation of monetary policy decisions when these are made, and the regular exposition of the central bank ’ s assessment of the current economic situation and its most likely evolution. in the absence of frequent disclosures about policy and the economic situation, market participants may not be in a position to attribute fluctuations in inflation either to exogenous disturbances outside the control of the central bank or to changes in policy intentions. adverse adjustments in expectations could lead to an increase in inflation today and to a slower and more painful reversal later in the process. 9 a central bank has two instruments in these situations, which are not substitutes, but rather complement each other. it can react to misconceptions once they manifest themselves, by enacting a particularly strong response to the threats that they pose. as inflation tends to persist once it is set in motion, the policy response might need to be sizeable and disruptive. in the “ old world ” in which central banks minimised their pronouncements and made no efforts to disclose their views on an ongoing basis, this reactive and demonstrative pattern of monetary policy response was indeed the only option open. it is difficult not to associate the systematic disconnect between the views entertained by the

to news related to the future path of short - term interest rates and cannot be contaminated by news relating to the announcement of the policy decision. a recent ecb study shows that there has been not only a general reduction in market reactions on governing council meeting days over time, but that the small remaining reactions relate much less to the surprise component for any given decision and much more to the surrounding communication and its implications for the future path of interest rates. 10 in a similar vein, a related research study finds that the ecb ’ s press conferences have – on average – larger effects on asset prices than do announcements of policy decisions. 11 at the same time, these larger effects on interest rates are accompanied by smaller effects on the volatility of asset prices, indicating that the signal to noise ratio of the press conference is high. this is not a surprising result at all. in fact, the q & a session allows journalists to pose clarifying questions and provides them with the opportunity to digest the information provided. accurate communication has yielded high predictability. there is compelling empirical evidence indicating that the ability of financial market participants to correctly anticipate the next monetary policy decision is – both in absolute terms and relative to other central banks – remarkably high. 12 for instance, out of a total of 153 days on which governing council meetings were held from 1999 to october 2008, financial markets were surprised – according to a common definition of the surprise element in this literature – on only eight occasions. the last surprise occurred in march 2003 when markets had actually perfectly anticipated that we would decrease our main policy rates, but they were rather surprised about the size of the change, which was smaller than expected at that time. market participants appear to have been able gradually to converge to a thorough understanding of the ecb ’ s monetary policy framework and communication mode. similar results on the degree of short - term predictability were found by a recent survey conducted by barclays capital among financial market participants. a sizeable majority of survey participants – 60 % – felt either “ very confident ” or “ confident ” in the way they were able to anticipate policy decisions by the ecb. brand, c., d. buncic and j. turunen ( 2006 ), “ the impact of ecb monetary policy decisions and communication on the yield curve ”, ecb working paper, no 657. ehrmann, m. and m. fratzscher ( 2007 ), “ explaining monetary policy in press conferences ”