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Central bank communication through interest rate projections

Author

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  • Brubakk, Leif
  • ter Ellen, Saskia
  • Xu, Hong

Abstract

In this paper we quantitatively investigate how central bank communication affects the market yield curve on announcement days. We do this for two central banks who communicate future policy intentions by means of publishing the path of expected future policy rates. We find that unanticipated changes in the published policy rates correspond to yield changes in the same direction. However, policy revisions cannot explain all variation in market rates on announcement days. We further shed some light on which sources of disagreement could explain these differences.

Suggested Citation

  • Brubakk, Leif & ter Ellen, Saskia & Xu, Hong, 2021. "Central bank communication through interest rate projections," Journal of Banking & Finance, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:jbfina:v:124:y:2021:i:c:s0378426621000029
    DOI: 10.1016/j.jbankfin.2021.106044
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    Citations

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    Cited by:

    1. Brubakk, Leif & ter Ellen, Saskia & Robstad, Ørjan & Xu, Hong, 2022. "The macroeconomic effects of forward communication," Journal of International Money and Finance, Elsevier, vol. 120(C).
    2. Boris Hofmann & Dora Xia, 2022. "Quantitative forward guidance through interest rate projections," BIS Working Papers 1009, Bank for International Settlements.
    3. Julián Caballero & Blaise Gadanecz, 2023. "Did interest rate guidance in emerging markets work?," BIS Working Papers 1080, Bank for International Settlements.
    4. Luchelle Soobyah & Daan Steenkamp, 2021. "Occasional Bulletin of Economic Notes 2101 Has publication of a repo path provided guidance," Occasional Bulletin of Economic Notes 11019, South African Reserve Bank.

    More about this item

    Keywords

    Monetary policy; Central bank communication; Interest rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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