Central bank communication by ??? The economics of monetary policy leaks

Layer 1 — Overview

Research Question

This paper investigates the economics of monetary policy leaks — anonymous disclosures of confidential information by insiders to the media — focusing on three central questions: (1) Are leaks random accidents, strategic individual disclosures, or institutionally authorized “plants”? (2) Do leaks shape public (financial market) views, and by how much? (3) Can attributed (named) communication by central bank officials mitigate the effects of leaks?

Data and Setting

The authors study the Eurosystem (ECB and euro area National Central Banks) over January 2002 to December 2021. Their primary data source is a novel database of 368 unique policy-relevant leaks — assembled by manually filtering and classifying more than a million news items from Reuters, Bloomberg, and Market News International archives — with precise minute-level timestamps. Topics covered include: policy rates (178 leaks), unconventional monetary policy/UMP (207 leaks), economic growth (47), inflation (41), and euro exchange rate (36); individual leaks may cover multiple topics. They complement this with a dataset of 7,883 attributable public statements by ECB Governing Council members, identified via keyword filtering and machine learning classification of the Reuters News Archive.

Methodology

The paper employs four main empirical strategies. First, high-frequency event studies using asymmetric windows (5 minutes before to 30 minutes after an event) compare absolute market reactions in OIS rates across the full term structure (3M to 10Y) and in the EURO STOXX 50 across leaks, 5,000 randomly sampled placebo events, and attributable statements. Second, Poisson regression models relate the number of leaks per policy meeting to proxies for Governing Council disagreement (Italian-German sovereign yield spread, inter-quartile range of national inflation rates, number of attributable statements per meeting) and a dummy for quarterly macroeconomic projection releases. Third, a regression framework tests whether leaks move market expectations toward the subsequent policy outcome — identifying whether leaks are informative about the direction of policy. Fourth, an augmented version of the Tillmann (2021) model relates end-of-day changes in longer-term OIS rates to high-frequency monetary policy surprises, interacted with dummies for post-announcement leaks and attributable statements.

Main Findings

Incidence and timing. The number of Eurosystem leaks peaked at 36 in 2019 (more than four per policy meeting on average) before declining by more than one third following the start of Christine Lagarde’s presidency in November 2019. Leaks cluster around policy meetings and, since 2015, have shifted notably from before meetings to after meetings, a shift driven by leaks related to UMP. Leaks occur even during the ECB’s quiet period, when policy-makers are formally restricted from public statements on policy-sensitive topics.

Leaks are not accidents. Poisson regressions reveal that the number of leaks per meeting is significantly and positively associated with proxies for Governing Council disagreement: every additional percentage point in the Italian-German sovereign yield spread is associated with approximately half an additional leak per meeting. The propensity of a policy change increases by four to six percentage points with each additional pre-meeting leak (statistically significant at the 5% or 10% level). The specification explains around 15% of the variation in leak counts.

Market impact. Market movements around leaks are up to 85% larger than those around placebo events. Leaks trigger market reactions that are consistently larger than those of attributable statements by individual Governing Council members across the entire OIS term structure and in equities — a result robust to controlling for distance to policy meetings. Rate leaks mainly move the short and medium end of the yield curve; UMP leaks affect the long end and equities. Leaks about general economic conditions (growth, inflation, exchange rate) produce little statistically significant market response.

Leaks are uninformative about policy direction. Conditional on a pre-meeting leak occurring, the average leak does not move market rates closer to the levels prevailing directly after the subsequent policy announcement. By contrast, attributable statements systematically do reduce this distance. This asymmetry implies that leaks predominantly reflect minority opinions within the Governing Council. Consistent with this, leaks counteract prevailing trends in market expectations at the short end of the yield curve (as established by a negative coefficient on the interaction between the prevailing seven-day pre-leak trend and the leak dummy).

Leaks are not plants; attributed communication mitigates their effects. Post-announcement leaks dampen the transmission of monetary policy surprises to longer-term rates (negative and significant interaction coefficient in the augmented Tillmann framework). Attributed statements by ECB Executive Board members, by contrast, systematically move in the direction opposite to the preceding leak across most of the yield curve, partially reversing leak-induced market moves. More intense pre-leak attributable communication is also associated with lower market impact of the subsequent leak, across most maturities. These results jointly indicate that most Eurosystem leaks originate from individual insiders with minority opinions rather than constituting institutional plants.

Scope Conditions

Results pertain to the Eurosystem committee setting, where decision-making is broadly consensus-based and voting records are not published; they may not fully generalize to institutions with concentrated decision-making power. The study measures effects on financial markets, not broader public opinion.

Layer 2 — Q&A

Q1: How is a “leak” defined in this paper, and how are Eurosystem leaks identified empirically?

A leak is defined as a disclosure of confidential information by an insider to the media with an expectation of anonymity. Eurosystem leaks are identified from Reuters, Bloomberg, and Market News International archives (2002–2021) using keyword-driven pre-filtering followed by manual classification of “candidate” items. The resulting database contains 1,253 news items that aggregate to 368 unique policy-relevant leaks with minute-level timestamps. Policy-relevant leaks touch on: policy rates, unconventional monetary policy tools, economic growth, inflation, or the euro exchange rate; leaks about local economic conditions, banking regulation, or managerial appointments are excluded.

Q2: What are the broad trends in the number and topic composition of Eurosystem leaks over 2002–2021?

The number of leaks rose sharply in the second half of the sample, peaking at 36 in 2019 (more than four per meeting on average). Since Christine Lagarde took over the ECB presidency in November 2019, leaks fell by more than one third from that peak. The topic composition shifted substantially over time: policy-rate leaks predominated in the earlier period, while leaks related to UMP came to dominate in the 2015–2021 sub-period.

Q3: How does the timing of leaks within the policy meeting cycle change across sub-periods?

In the full sample, leaks cluster in the run-up to policy meetings and immediately following announcement days (both on the announcement day itself and the following Friday). Since 2015, a notable shift occurs from pre-meeting to post-meeting timing, driven specifically by leaks related to UMP. The authors attribute this shift to the expectation-management role of UMP: post-meeting leaks allow dissenting insiders to reshape market expectations that are otherwise guided by official press releases and press conferences.

Q4: What regression evidence supports the view that leaks are not random accidents?

Poisson regressions of the number of leaks per meeting on disagreement proxies find significant positive coefficients on: the lagged Italian-German sovereign yield spread (about half a leak more per meeting for each additional percentage point of spread), the inter-quartile range of national inflation rates, and the number of attributable statements per meeting. Meetings coinciding with the release of quarterly macroeconomic projections also attract significantly more leaks. These results are robust to replacing the disagreement proxies with a binary dissent index based on Q&A sessions at ECB press conferences (Tillmann, 2021), even after excluding disagreement-related leaks from the dependent variable to address endogeneity. The model explains about 15% of the variation in leak counts.

Q5: Does the number of pre-meeting leaks predict policy changes?

Yes. The propensity of a monetary policy change increases by four to six percentage points with each additional pre-meeting leak (significant at the 5% or 10% level). This signal about the propensity of change (not the direction) is hard to square with the random accidents hypothesis.

Q6: How large are the financial market reactions to leaks relative to placebo events and to attributable statements?

Market movements around leaks are up to 85% larger than the average size of market reactions to 5,000 randomly sampled placebo events. When leaks are compared directly to attributable statements (with leaks as the baseline and fixed effects for year, month, weekday, and hour), average absolute market moves around leaks are consistently larger across the entire term structure of OIS rates and for the EURO STOXX 50. This result is robust to differences in distance to policy meetings, with size differences across the full term structure persisting for periods far from meetings; near meetings, differences narrow but the average market reaction to leaks never falls below that to attributable statements.

Q7: Do the market effects of leaks differ by topic?

Yes. Leaks about policy rates primarily move the short and medium end of the yield curve. Leaks about UMP tools affect the long end of the curve and equities. Leaks about general economic conditions (growth, inflation, euro exchange rate) do not produce statistically significant market reactions, consistent with the interpretation that economic condition leaks require more interpretation before their implications for the policy path become apparent.

Q8: Do leaks move market expectations in the direction of the subsequent policy outcome?

No. The average pre-meeting leak does not reduce the absolute distance of market rates to post-announcement levels. This result holds across maturities from 3M to 10Y and is robust to separating leaks inside and outside the ECB’s quiet period. Attributable statements, by contrast, systematically reduce this distance (Table 7). The failure of leaks to align expectations with outcomes is interpreted as evidence that leaks predominantly reflect minority views within the Governing Council rather than information held by the decisive voter.

Q9: Do leaks counteract or reinforce prevailing trends in market expectations?

Leaks counteract prevailing trends. The regression of market reactions to leaks and placebo events on the seven-day pre-event trend reveals a significantly negative interaction between the trend and the leak dummy at the short end of the yield curve. This result is driven specifically by leaks about policy rates.

Q10: Do post-announcement leaks dampen the transmission of monetary policy surprises to longer-term rates?

Yes. In the augmented Tillmann (2021) framework, the interaction of the high-frequency 2Y monetary policy surprise with a dummy for post-announcement leaks is negative and significant for 2Y, 5Y, and 10Y OIS rates. In contrast, the interaction with a dummy for post-announcement attributable statements is positive and significant across maturities, indicating that attributed communication reinforces the official policy signal. These two results jointly show that leaks weaken official policy announcements while attributed communication strengthens them.

Q11: Does more intense pre-leak attributable communication reduce the market impact of subsequent leaks?

Yes. Using an intensity measure that weights each attributable statement by the inverse of its distance in hours to the subsequent leak (covering a window from 36 hours to 30 minutes before the leak), the paper finds a significant negative relationship between pre-leak communication intensity and the absolute market reaction to the leak, controlling for year, month, weekday, and hour fixed effects. This holds across most maturities.

Q12: Does the market impact evidence support the “plant” hypothesis?

No. If leaks were institutional plants intended to prepare markets for new policy, one would expect the ECB Executive Board — which controls official communication — to subsequently reinforce the signal from leaks. Instead, attributable statements by ECB-affiliated Governing Council members are systematically negatively correlated with the market direction of the preceding leak across the yield curve, with significant coefficients at medium maturities. NCB Governor statements show weaker and more ambiguous effects, potentially because their statements generate smaller average market movements rather than reflecting a lack of willingness to counteract leaks.

Q13: Why do markets react to leaks even though leaks are generally uninformative about policy outcomes?

The paper offers three candidate explanations: (1) automated trading algorithms that do not distinguish between attributed and anonymous communication; (2) leaks serve as a coordination device in the spirit of Morris and Shin (2002), amplifying even noisy signals; (3) media-reporting models such as Nimark (2014) and Chahrour et al. (2021) predict that “man-bites-dog” news — unusual events such as revelations of committee disagreement — shift beliefs beyond their true information content. Leaks are unusual both in frequency (far less common than attributed statements) and in content (they reveal disagreement that rarely surfaces in official communication).

Q14: What are the implications for the measurement of monetary policy shocks from high-frequency identification?

The paper notes that Eurosystem leaks frequently occur shortly before or after official policy announcements. Pre-announcement leaks can shift market expectations before the start of standard event windows, reducing the measured surprise component of official announcements. Post-meeting leaks dampen the end-of-day effects of announcements. In both cases, standard high-frequency surprise instruments extracted from official announcements alone may miss the full extent of new information available to market participants, suggesting that accounting for leaks could improve the relevance of high-frequency instruments used in monetary policy identification.

Q15: What are the implications for the design of central bank quiet periods?

The ECB’s quiet period ends with the policy announcement, whereas the Federal Reserve’s extends to the day after the meeting. Based on the finding that post-announcement leaks dampen policy announcement effects while post-announcement attributed statements reinforce them, the paper suggests that permitting attributed communication shortly after policy decisions may help mitigate the market impact of post-announcement leaks.

Key Concepts

Monetary policy leak (“sources story”): In this paper, a leak is defined as a disclosure of confidential information emanating from an insider within the Eurosystem (ECB or NCB staff or policy-makers) that is transmitted to financial media with an expectation of anonymity for the source. The paper excludes whistle-blower cases and focuses on leaks where anonymity keeps attention on the content rather than the identity of the source. Leaks are distinct from “plants” (formally authorized institutional disclosures intended to advance the institution’s goals) and from “pleaks” (the middle ground).

Plant: An authorized or semi-authorized anonymous disclosure of confidential information made for the purpose of advancing the public institution’s own goals and interests, as distinct from a leak that originates from an individual insider’s personal agenda. The paper tests and rejects the plant hypothesis for most Eurosystem leaks on the basis that ECB Executive Board members’ attributed statements systematically counteract the market impact of leaks.

Single voice principle: The ECB’s communication norm requiring that Governing Council members discuss and resolve disagreements internally while publicly representing the official policy stance. This principle creates a setting where individual members with minority views may resort to anonymous communication as a way to express dissent “off-protocol.”

Quiet period (purdah): The ECB’s rule requiring policy-makers to refrain from public statements on policy-related topics in the seven days before each Governing Council monetary policy meeting. Leaks cluster during this period despite the restriction, supporting the non-random interpretation of leaks.

Attributable (named) statement: A public statement clearly attributed to a specific, named member of the ECB Governing Council, reported as a breaking-news headline. Attributable statements serve both as a comparison benchmark for measuring the market impact of leaks and as a mitigation instrument when they counteract leak-induced market moves.

Pre-leak communication intensity (lambda): The paper’s measure of the intensity of attributable communication in the 36-hour window before a given leak, defined as the sum of inverse time distances (in hours) from each attributable statement to the leak. A higher value means more recent and/or more numerous attributed statements precede the leak.

High-frequency event study window: The paper uses an asymmetric window starting 5 minutes before and ending 30 minutes after a leak’s timestamp. Market reactions are measured as the change in the median OIS quote during the 10 minutes after the window versus the 10 minutes before, matching methodology used for both leaks and attributable statements to ensure comparability across communication types.

Post-announcement leak dummy: An indicator taking the value of one if at least one leak occurs between the end of the official ECB monetary policy announcement window (15:50 CET) and end of trading hours on the announcement day. Used in the augmented Tillmann (2021) regression to measure whether leaks dampen the transmission of monetary policy surprises to longer-term rates.