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Has the Clarity of Humphrey-Hawkins Testimonies Affected Volatility in Financial Markets?

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Author Info
David-Jan Jansen

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Abstract

By applying readability statistics to the Humphrey-Hawkins testimonies given by the Federal Reserve Chairman, I test whether the clarity of central bank communication affects volatility in financial markets. There are three key results. First, when clarity matters, the results are unequivocal: clarity diminishes volatility. Second, clarity of communication matters mostly for volatility of medium-term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's term at the Federal Reserve. Overall, the analysis shows the importance of transparent communication on monetary policy.

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Publisher Info
Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 185.

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Date of creation: Nov 2008
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Handle: RePEc:dnb:dnbwpp:185

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Related research
Keywords: central bank communication; transparency; readability; financial markets; volatility;

Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General

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  1. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March. [Downloadable!] (restricted)
    Other versions:
  2. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 509-541, 03. [Downloadable!] (restricted)
  3. Diamond, Arthur M, Jr & Levy, David M, 1994. "The Metrics of Style: Adam Smith Teaches Efficient Rhetoric," Economic Inquiry, Oxford University Press, vol. 32(1), pages 138-45, January.
  4. Cruijsen, C. van der & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency: A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  5. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September. [Downloadable!] (restricted)
  6. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Working Papers 1038, Princeton University, Department of Economics, Center for Economic Policy Studies.. [Downloadable!]
    Other versions:
  7. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December. [Downloadable!]
  8. Matthew C. Clayton & Jay C. Hartzell & Joshua Rosenberg, 2005. "The Impact of CEO Turnover on Equity Volatility," Journal of Business, University of Chicago Press, vol. 78(5), pages 1779-1808, September. [Downloadable!]
    Other versions:
  9. Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2005-2), pages 1-66. [Downloadable!]
  10. Dubofsky, David A, 1991. " Volatility Increases Subsequent to NYSE and AMEX Stock Splits," Journal of Finance, American Finance Association, vol. 46(1), pages 421-31, March. [Downloadable!] (restricted)
  11. Michael Ehrmann & Marcel Fratzscher, 2007. "Social value of public information - testing the limits to transparency," Working Paper Series 821, European Central Bank. [Downloadable!]
  12. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November. [Downloadable!] (restricted)
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