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Managing financial market expectations: The role of central bank transparency and central bank communication

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  • Neuenkirch, Matthias

Abstract

In this paper, we study the influence of central bank transparency and informal central bank communication on the formation of money market expectations. The sample covers nine major central banks from January 1999 to July 2007. We find, first, that transparency reduces the bias in money market expectations and dampens their variation. Second, informal communications help manage financial market expectations by reducing the variation of expectations. Third, various subcategories of the Eijffinger and Geraats (2006) transparency index lead to a smaller bias in expectations (in particular, evaluation of policy outcome and explanation of interest rate decisions) and to a reduction in the variation of expectations (in particular, explicit prioritization of objectives and provision of information on unanticipated macroeconomic disturbances).

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 28 (2012)
Issue (Month): 1 ()
Pages: 1-13

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Handle: RePEc:eee:poleco:v:28:y:2012:i:1:p:1-13

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Web page: http://www.elsevier.com/locate/inca/505544

Related research

Keywords: Central bank communication; Central bank transparency; Financial market expectations; Interest rate decision; Monetary policy; Money market;

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References

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Citations

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Cited by:
  1. Neuenkirch, Matthias, 2013. "Central bank transparency and financial market expectations: The case of emerging markets," Economic Systems, Elsevier, Elsevier, vol. 37(4), pages 598-609.
  2. Allard, Julien & Catenaro, Marco & Vidal, Jean-Pierre & Wolswijk, Guido, 2012. "Central bank communication on fiscal policy," Working Paper Series, European Central Bank 1477, European Central Bank.
  3. Detmers, Gunda-Alexandra & Nautz, Dieter, 2013. "How Stale Central Bank Interest Rate Projections Affect Interest Rate Uncertainty," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79861, Verein für Socialpolitik / German Economic Association.
  4. Böhm, Jiří & Král, Petr & Saxa, Branislav, 2012. "The Czech National Bank's monetary policy in the media," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(3), pages 341-357.
  5. Gunda-Alexandra Detmers & Dieter Nautz, 2014. "Stale Forward Guidance," SFB 649 Discussion Papers SFB649DP2014-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  6. Demiralp, Selva & Kara, Hakan & Özlü, Pınar, 2012. "Monetary policy communication in Turkey," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(4), pages 540-556.
  7. Dumiter Florin Cornel, 2012. "The Crucial Role Of Central Bank Transparency In Assessing The Monetary Policy Committee Mechanism," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 557-563, December.
  8. Aleš Bulíř & Martin Čihák & David-Jan Jansen, 2013. "What Drives Clarity of Central Bank Communication About Inflation?," Open Economies Review, Springer, Springer, vol. 24(1), pages 125-145, February.

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