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The reaction of asset markets to Swiss National Bank communication

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  • Angelo Ranaldo
  • Enzo Rossi

Abstract

In this paper we analyze high-frequency movements in Swiss financial markets in reaction to real-time communication by the Swiss National Bank. Our analysis of central bank communication encompasses official speeches and interviews, not only monetary policy announcements. We examine the reactions of the currency market, the bond market and the stock exchange. The evidence suggests that speeches and interviews, along with monetary policy announcements, engender a significant price reaction. This paper sheds light on the relevance of communications other than monetary policy announcements.

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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2007-11.

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Length: 50 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:snb:snbwpa:2007-11

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Keywords: central bank communication; speeches; interviews; monetary policy announcements; financial market reaction; high-frequency data;

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References

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  1. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, Elsevier, vol. 73(2), pages 251-277, November.
  2. Refet Gürkaynak & Brian Sack & Eric Swanson, 2004. "Do actions speak louder than words? the response of asset prices to monetary policy actions and statements," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-66, Board of Governors of the Federal Reserve System (U.S.).
  3. Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What explains the stock market's reaction to Federal Reserve policy?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-16, Board of Governors of the Federal Reserve System (U.S.).
  4. Refet S. Gürkaynak & Andrew T. Levin & Andrew N. Marder & Eric T. Swanson, 2007. "Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 11, pages 415-465 Central Bank of Chile.
  5. Jansen, David-Jan & De Haan, Jakob, 2005. "Talking heads: the effects of ECB statements on the euro-dollar exchange rate," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(2), pages 343-361, March.
  6. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(2-3), pages 509-541, 03.
  7. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(1), pages 133-151, January.
  8. Ehrmann, Michael & Fratzscher, Marcel, 2008. "Purdah: on the rationale for central bank silence around policy meetings," Working Paper Series, European Central Bank 0868, European Central Bank.
  9. Andersson, Magnus & Hansen, Lars Jul & Sebestyén, Szabolcs, 2006. "Which news moves the euro area bond market?," Working Paper Series, European Central Bank 0631, European Central Bank.
  10. Upper, Christian & Werner, Thomas, 2002. "Tail Wags Dog? Time-Varying Information Shares in the Bund Market," Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank, Research Centre 2002,24, Deutsche Bundesbank, Research Centre.
  11. Andersson, Malin & Dillen, Hans & Sellin, Peter, 2006. "Monetary policy signaling and movements in the term structure of interest rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(8), pages 1815-1855, November.
  12. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports, Federal Reserve Bank of New York 99, Federal Reserve Bank of New York.
  13. Carin van der Cruijsen & Maria Demertzis, 2005. "The Impact of Central Bank Transparency on Inflation Expectations," DNB Working Papers, Netherlands Central Bank, Research Department 031, Netherlands Central Bank, Research Department.
  14. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 425-436, March.
  15. 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.).
  16. Reeves, Rachel & Sawicki, Michael, 2007. "Do financial markets react to Bank of England communication?," European Journal of Political Economy, Elsevier, Elsevier, vol. 23(1), pages 207-227, March.
  17. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 489-516, October.
  18. Alan S. Blinder, 2006. "Monetary Policy Today: Sixteen Questions and about Twelve Answers," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 73, Princeton University, Department of Economics, Center for Economic Policy Studies..
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Citations

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Cited by:
  1. Paul Söderlind, 2010. "Reaction of Swiss Term Premia to Monetary Policy Surprises," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 146(I), pages 385-404, March.
  2. Sazedj, Sharmin & Tavares, José, 2011. "Hope, Change, and Financial Markets: Can Obama's Words Drive the Market?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8713, C.E.P.R. Discussion Papers.
  3. Thomas Jordan & Angelo Ranaldo & Paul Söderlind, 2009. "The implementation of SNB monetary policy," Financial Markets and Portfolio Management, Springer, Springer, vol. 23(4), pages 349-359, December.
  4. Kamel Malik Bensafta & Gervasio Semedo, 2014. "Transmission de la volatilité et Central-Banking," Working Papers, HAL halshs-01012058, HAL.
  5. Matthias Neuenkirch, 2010. "Managing Financial Market Expectations: The Role of Central Bank Transparency and Central Bank Communication," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201028, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Moessner, Richhild & Allen, William A., 2013. "Central bank swap line effectiveness during the euro area sovereign debt crisis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 35(C), pages 167-178.

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