ECB Hawk-Dove Ranking: Governing Council Less Dovish Than Its Decisions

4 June 2021


By David Barwick – FRANKFURT (Econostream) – Fortunately for the human fondness for categories, there are few equivalents of the duck-billed platypus when it comes to central bankers. That is, most of those directly responsible for setting the course of monetary policy can be assigned to some region of the philosophical spectrum from whose opposite sides the so-called hawks and doves eye each other.

As with the military metaphor from which the monetary policy analogue is borrowed, hawkish central bankers are more inclined to confront the enemy – inflation - while their dovish colleagues are more willing to live and let live, presumably for the sake of higher employment.

How these predispositions manifest depends crucially on time and place. In the current low-inflation environment that many advanced economies found themselves in even before the pandemic, the doves tend to agitate for action in the form of monetary stimulus, whereas the hawks are less troubled by persistently weak – though positive - price pressures.

Conversely, it is the hawks who under the present circumstances are quickest to underscore the eventual necessity of an exit from highly accommodative policies, and to apprehend even a still-faint spectre of higher prices, while the doves prefer to warn of the perils of being too quick to tighten policy.

Of course, not all central bankers reside at one of the extremes or even clearly on one side or another of the spectrum’s middle. Those situated around the midpoint are typically called ‘centrist’ or ‘pragmatic’, and it is to be supposed that they take a purely practical, ad hoc approach to monetary policy decisions.

Classifying central bankers in this manner is a sport engaged in almost wholly by the spectators, as the central bankers themselves do not wish to be pigeonholed and are thus not quick to claim the title of hawk or dove. Nonetheless, the positions they stake out publicly on issues of monetary policy often provide clear guidance as to where they line up on the spectrum.

Our ranking of European Central Bank Governing Council members thus depends very heavily on the comments the members make in speeches, interviews, panel discussions and the like. Most fundamentally, we simply asked ourselves in effect whether those comments are more consistent with a dovish or hawkish view of things and to what degree.

The ranking is not an assessment of Council members’ influence, which is a separate issue, even if it is naturally so that the more influential a member is, the more influential he or she will be as a hawk or a dove, as the case may be.

The rationale for ignoring influence is twofold. First, influence is a much more complicated question that includes personality, monetary policy credentials (a function of longevity as well as academic and professional background), the share in the capital key of the member’s country of origin (in the case of non-Executive Board members), whether the member is ‘just’ a Council member or an Executive Board member, whether an Executive Board member has a particularly relevant role (e.g. as chief economist), whether the member is close to retirement, whether the member’s command of English is consistent with full participation in the discussion, and so on.

Second, it is true that, given two Governing Council members equally hawkish or dovish per se, the more influential member’s impact on policy outcomes over time might be greater. However, for any given measure the Council needs to approve or reject by consensus, a vote is a vote, and we assume our ranking will be of highest interest in pondering the direction a particular policy meeting might take, rather than how the policy stance could look in six months or the medium term. That one member might be more influential is less relevant in the more limited context in which both will use their one vote in favour of or in opposition to a measure under consideration.

An obvious obstacle to a hawk-dove classification of ECB Governing Council members based on their public comments is that some of them rarely speak publicly. Others are relatively new and have no significant track record of public monetary policy pronouncements.

In such cases, we proceed cautiously and make a determination based in part on country of origin – we would hardly claim that the predisposition to a particular monetary policy philosophy is genetic in origin, but it is reasonably clear that, for reasons beyond the scope of our ranking, some countries lean in one direction, and others in another.

And of course, in the absence of a public record, we were also guided by any other insights we might happen to be privy to about a given ECB Governing Council member’s monetary policy perspective. As we go acquiring such insights – or for that matter insights based on public comments – any member’s ranking could change accordingly.

To explain our reasoning in the light of specific examples, consider Executive Board member Fabio Panetta. Panetta has regularly given significant policy speeches and interviews, such as the remarks he made on March 2 - in which he issued a ringing call for the ECB to ensure that nominal yields remain low - or the interview published May 26, when he spoke of a further undesirable increase in yields.

He is not the only one to be quick to brand a rise in yields as undesirable and to advocate a policy reaction. But he argues more forcefully and goes further than most of his colleagues, and a look at the record shows that this has often been the case over the last year. We felt that gauging him as most dovish fairly reflected this tendency.

We rank Bank of Spain Governor Pablo Hernández de Cos right alongside Panetta. Although slightly less vigorous than Panetta about calling for ECB action, he is clearly willing to endorse it just as readily and delivers relentlessly dovish assessments of the outlook to justify maintaining policy support.

Continuing down the ranking, we considered Chief Economist Philip Lane to be almost but not quite as dovish as Panetta and de Cos. It is certainly possible that they all vote the same nearly all the time. But Lane does not push the envelope publicly to quite the same extent – possibly because Lane as ECB chief economist may prefer to refrain from staking out less clearly consensual positions. Be that as it may, we classify him as a notch less dovish.

Then there is the issue of the system of rotation, whereby all non-Executive Board members on the Council sometimes – though with varying degrees of frequency based on country of origin – have no vote at a meeting. We took the easiest approach here and simply indicate in the table the distribution of voting rights at each of the respective next three monetary policy meetings.

A final note: we take this to be an art, not a science. That said, we were unable to resist computing the average ‘hawk-dovishness’ of the Governing Council. Our result, much as we would have guessed, shows the Council as a whole to have a mildly dovish tilt. Considered in isolation, the Executive Board is decidedly more dovish, as we would also anticipate. This discrepancy might explain why policy outcomes are perhaps somewhat more dovish than one would expect for the entire Council’s less pronounced level of dovishness.