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Small notes, big impact: Enhancing monetary policy transmission through central bank communication

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  • Li, Wei
  • Hu, Wenhua

Abstract

Central bank communication helps to optimize monetary policy. This paper uses a quasi-natural experiment to identify the brief commentary in open market operation notices (OMO “small notes”). It investigates how this implementation narrows the deviation of the market interest rate from its policy-intended level. We further evaluate the heterogeneous effects of liquidity comments of “small notes” on interest rate spreads. Our results suggest that OMO “small notes” improve the central bank transparency and close the gap between the market interest rate and its policy-intended level and that all liquidity comments of “small notes” enhance the effectiveness of monetary policy transmission to some extent, with “excessive liquidity” comments being the most effective. These outcomes prove that “small notes” may have the potential as a regular monetary policy communication mechanism.

Suggested Citation

  • Li, Wei & Hu, Wenhua, 2026. "Small notes, big impact: Enhancing monetary policy transmission through central bank communication," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:pacfin:v:96:y:2026:i:c:s0927538x25003877
    DOI: 10.1016/j.pacfin.2025.103050
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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