Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets
AbstractCentral bank governor changes in emerging markets may convey important signals about future monetary policy. Based on a new daily data set, this paper examines the reactions of foreign exchange markets, domestic stock market indices and sovereign bond spreads to central bank governor changes. The data cover 20 emerging markets over the period 1992-2006. We find that the replacement of a central bank governor negatively affects financial markets on the announcement day. This negative effect is mainly driven by irregular changes, i.e., changes occurring before the scheduled end of tenure, sending negative signals about perceived central bank independence. Personal characteristics of the central banker, to the contrary, are less important for market reactions. We find no evidence that changes in the central banker’s conservatism affect the reactions of the markets. Finally, market reactions are similar in countries with high and low degrees of central bank independence.
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Bibliographic InfoPaper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 07-177.
Length: 46 pages
Date of creation: Oct 2007
Date of revision:
central bank governor turnover; monetary policy; emerging markets; risk premium;
Other versions of this item:
- Christoph Moser & Axel Dreher, 2010. "Do Markets Care about Central Bank Governor Changes? Evidence from Emerging Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1589-1612, December.
- Dreher, Axel & Moser, Christoph, 2008. "Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets," Proceedings of the German Development Economics Conference, Zurich 2008 29, Verein für Socialpolitik, Research Committee Development Economics.
- Christoph Moser & Axel Dreher, 2007. "Do Markets Care about Central Bank Governor Changes? Evidence from Emerging Markets," CESifo Working Paper Series 2177, CESifo Group Munich.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F30 - International Economics - - International Finance - - - General
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-CBA-2007-11-10 (Central Banking)
- NEP-MAC-2007-11-10 (Macroeconomics)
- NEP-MON-2007-11-10 (Monetary Economics)
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