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Do Markets Care Who Chairs the Central Bank?

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  • Kenneth N. Kuttner
  • Adam S. Posen

Abstract

This paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy. To measure these effects, we assemble a new dataset of appointment announcements from 15 countries, and conduct an event study analysis on exchange rates, bond yields, and stock prices. The analysis reveals a significant reaction of exchange rates and bond yields to unexpected appointments. The reactions are not unidirectional, and thus do not suggest new governors suffer from a generic credibility problem. Federal Reserve chairman appointments stand out in terms of their unusually pronounced effects on financial markets.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13101.

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Date of creation: May 2007
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Publication status: published as Kenneth N. Kuttner & Adam S. Posen, 2010. "Do Markets Care Who Chairs the Central Bank?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 347-371, 03.
Handle: RePEc:nbr:nberwo:13101

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  1. Ernst Schaumburg & Andrea Tambalotti, 2003. "An Investigation of the Gains from Commitment in Monetary Policy," Macroeconomics, EconWPA 0302004, EconWPA.
  2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 589-610, August.
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  4. Jon Faust & John H. Rogers & Eric Swanson & Jonathan H. Wright, 2003. "Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data," NBER Working Papers, National Bureau of Economic Research, Inc 9660, National Bureau of Economic Research, Inc.
  5. Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," NBER Working Papers, National Bureau of Economic Research, Inc 10402, National Bureau of Economic Research, Inc.
  6. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series, Federal Reserve Bank of San Francisco 2006-09, Federal Reserve Bank of San Francisco.
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  16. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-50, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Förch, Thomas & Sunde, Uwe, 2012. "Central bank independence and stock market returns in emerging economies," Economics Letters, Elsevier, Elsevier, vol. 115(1), pages 77-80.
  2. Robert S. Gazzale & Jared C Carbone, 2011. "A Shared Sense of Responsibility: Money Versus Effort Contributions in the Vountary Provision of Public Goods," Department of Economics Working Papers, Department of Economics, Williams College 2011-12, Department of Economics, Williams College.
  3. Matthias Neuenkirch & Peter Tillmann, 2013. "Superstar Central Bankers," Research Papers in Economics, University of Trier, Department of Economics 2013-08, University of Trier, Department of Economics.
  4. Etienne Farvaque & Hakim Hammadou & Piotr Stanek, 2011. "Selecting Your Inflation Targeters: Background and Performance of Monetary Policy Committee Members," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 12(2), pages 223-238, 05.
  5. Kenneth Kuttner & Adam Posen, 2011. "How Flexible Can Inflation Targeting Be and Still Work?," Department of Economics Working Papers, Department of Economics, Williams College 2011-10, Department of Economics, Williams College, revised Sep 2011.
  6. Petra Gerlach-Kristen, 2008. "The Role of the Chairman in Setting Monetary Policy: Individualistic vs. Autocratically Collegial MPCs," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 119-143, September.
  7. Christoph Moser & Axel Dreher, 2007. "Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 07-177, KOF Swiss Economic Institute, ETH Zurich.

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