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Central bank talk: does it matter and why?

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Author Info
Donald L. Kohn
Brian P. Sack
Abstract

Statements released by the Federal Open Market Committee (FOMC) and congressional testimony by Chairman Greenspan are found to significantly affect market interest rates, indicating that central bank "talk" conveys important information to market participants. These effects arise not only because the statements provide information about the near-term policy inclinations of the FOMC but also because the statements convey information about the outlook for the economy. By contrast, statements raising questions about asset valuations typically have not generated a significant response of those asset prices.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2003-55.

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Date of creation: 2003
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Handle: RePEc:fip:fedgfe:2003-55

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Keywords: Monetary policy ; Banks and banking; Central;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June. [Downloadable!] (restricted)
  2. Jones, Charles M. & Lamont, Owen & Lumsdaine, Robin L., 1998. "Macroeconomic news and bond market volatility," Journal of Financial Economics, Elsevier, vol. 47(3), pages 315-337, March. [Downloadable!] (restricted)
  3. Christina D. Romer & David H. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June. [Downloadable!] (restricted)
  4. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January. [Downloadable!] (restricted)
  5. Ben S. Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Staff Reports 174, Federal Reserve Bank of New York. [Downloadable!]
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  6. Roberto Rigobon & Brian Sack, 2002. "The impact of monetary policy on asset prices," Finance and Economics Discussion Series 2002-4, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June. [Downloadable!] (restricted)
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  8. Antulio N. Bomfim & Vincent R. Reinhart, 2000. "Making news: financial market effects of Federal Reserve disclosure practices," Finance and Economics Discussion Series 2000-14, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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