I would argue that some ‘teething problems’ in communication with financial markets are inevitable for a new institution. The ECB is still learning about how best to communicate its message to the markets. The financial markets are still learning – from our track record – about the application of the ECB’s monetary policy strategy.
I will now turn my attention to the evidence on the extent to which ECB monetary policy has been both credible and predictable in the eyes of the financial markets. A key indicator of credibility of ECB monetary policy comes from expectations of inflation implied by the differences between the returns on real and nominal bonds.