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Managing Financial Market Expectations: The Role of Central Bank Transparency and Central Bank Communication

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  • Matthias Neuenkirch

    () (Philipps-University Marburg)

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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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/28-2010_neuenkirch.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201028.

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Length: 29 pages
Date of creation: 2010
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201028

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Related research

Keywords: Central Bank Communication; Central Bank Transparency; Financial Market Expectations; Interest Rate Decision; Monetary Policy; Money Market;

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  1. Cruijsen, C.A.B. 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.
  2. Cruijsen, C.A.B. van der, 2008. "The Economic Impact of Central Bank Transparency," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3130604, Tilburg University.
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Cited by:
  1. Julien Allard & Marco Catenaro & Jean-Pierre Vidal & Guido Wolswijk, 2012. "Central bank communication on fiscal policy," Working Paper Series 1477, European Central Bank.
  2. Matthias Neuenkirch, 2011. "Central Bank Transparency and Financial Market Expectations: The Case of Emerging Markets," MAGKS Papers on Economics 201136, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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