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The clarity of monetary policy communication and financial market volatility in developing economies

Author

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  • Vyshnevskyi, Iegor
  • Jombo, Wytone
  • Sohn, Wook

Abstract

This study investigates the effect of the clarity of monetary policy statements (MPSs) on financial market volatilities by employing linguistic analysis and a panel fixed effects estimator for a newly built dataset drawn from the MPSs of 21 developing countries. Our results show that MPS clarity, measured by complexity and readability indices, negatively affects foreign exchange rate volatility, a key policy variable in developing economies, suggesting that clear central bank communication can reduce financial market volatility. Given the low literacy levels in developing countries, their central banks should make an extra effort to write statements that are easy to comprehend.

Suggested Citation

  • Vyshnevskyi, Iegor & Jombo, Wytone & Sohn, Wook, 2024. "The clarity of monetary policy communication and financial market volatility in developing economies," Emerging Markets Review, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:ememar:v:59:y:2024:i:c:s1566014124000165
    DOI: 10.1016/j.ememar.2024.101121
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    More about this item

    Keywords

    Monetary policy communication; Complexity and readability; Financial market volatility; Text mining tool; Developing countries;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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