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This paper investigates how financial market experts perceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of individual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's interest rate rule. While the perception of monetary policy regarding inflation has become more accurate since the clarification of the ECB's monetary policy strategy in May 2003, the experts' misperception regarding the ECB's reaction to output has increased in the financial crisis.

Central Bank Communication and the Perception of Monetary Policy by Financial Market Experts