No. 1513 - Uncertainty, data dependence and interest rate volatility

Temi di discussione (Working papers)
by Vincenzo Cuciniello, Giuseppe Ferrero, Alessandro Notarpietro and Sergio Santoro
December 2025
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This paper analyses how central bank communication regarding the degree of uncertainty surrounding its macroeconomic forecasts influences the reaction of financial markets to economic news. The analysis combines an empirical exercise for the euro area with a theoretical model of imperfect information, in which neither the central bank nor the private sector can accurately distinguish the persistent component of inflation from the transitory one.

The higher the degree of uncertainty about macroeconomic forecasts signaled by the central bank, the greater the weight financial markets place on the release of macroeconomic data when forming their expectations about the economic outlook, and the less weight they assign to the central bank's communication.

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  1. 22 December 2025
    No. 1513 - Uncertainty, data dependence and interest rate volatility
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