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Monetary policy communication in Turkey

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Author Info

  • Demiralp, Selva
  • Kara, Hakan
  • Özlü, Pınar

Abstract

This paper assesses the effectiveness of monetary policy communication of the Central Bank of Turkey (CBT) by quantifying the information content of its policy statements released right after the monthly Monetary Policy Committee meetings. First, we quantify the signal regarding the next interest rate decision and ask whether communication improves predictability. Our findings suggest that the role of statements in predicting the next policy move has strengthened following the adoption of a full-fledged inflation targeting (IT) regime. Second, we identify the surprise component of policy communication directly from market commentaries and assess its impact on the term structure of interest rates. We find that the response of the yield curve to policy statements has become highly significant for the unanticipated changes in the monetary policy communication, especially after the implementation of the IT. We also compare the yield curve impact of the surprise component of policy decisions (actions) with the surprises in policy communication (words). Our results suggest that the relative importance of communication in driving market yields has increased through time.

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Bibliographic Info

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

Volume (Year): 28 (2012)
Issue (Month): 4 ()
Pages: 540-556

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Handle: RePEc:eee:poleco:v:28:y:2012:i:4:p:540-556

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

Related research

Keywords: Central bank communication; Predictability; Transparency;

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References

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  1. James D. Hamilton & Oscar Jorda, . "A model for the federal funds rate target," Department of Economics 99-07, California Davis - Department of Economics.
  2. Refet Gürkaynak & Brian Sack & Eric Swanson, 2004. "Do actions speak louder than words? the response of asset prices to monetary policy actions and statements," Finance and Economics Discussion Series 2004-66, Board of Governors of the Federal Reserve System (U.S.).
  3. Ehrmann, Michael & Fratzscher, Marcel, 2007. "The timing of central bank communication," European Journal of Political Economy, Elsevier, vol. 23(1), pages 124-145, March.
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  8. Blinder, Alan S. & Ehrmann, Michael & de Haan, Jakob & Fratzscher, Marcel & Jansen, David-Jan, 2008. "Central Bank communication and monetary policy: a survey of theory and evidence," Working Paper Series 0898, European Central Bank.
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  10. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  11. Neuenkirch, Matthias, 2012. "Managing financial market expectations: The role of central bank transparency and central bank communication," European Journal of Political Economy, Elsevier, vol. 28(1), pages 1-13.
  12. Berk, Jan Marc & Bierut, Beata K., 2011. "Communication in a monetary policy committee," European Journal of Political Economy, Elsevier, vol. 27(4), pages 791-801.
  13. Donald L. Kohn & Brian P. Sack, 2003. "Central bank talk: does it matter and why?," Finance and Economics Discussion Series 2003-55, Board of Governors of the Federal Reserve System (U.S.).
  14. Duran, Murat & Özcan, Gülserim & Özlü, Pınar & Ünalmış, Deren, 2012. "Measuring the impact of monetary policy on asset prices in Turkey," Economics Letters, Elsevier, vol. 114(1), pages 29-31.
  15. Andersson, Malin & Dillen, Hans & Sellin, Peter, 2006. "Monetary policy signaling and movements in the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1815-1855, November.
  16. Demiralp, Selva & Jorda, Oscar, 2004. "The Response of Term Rates to Fed Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 387-405, June.
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