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Does the Clarity of Monetary Policy Reports Reduce Volatility in Financial Markets?

Author

Listed:
  • Ales Bulir

    (International Monetary Fund, Washington, DC, USA)

  • Martin Cihak

    (International Monetary Fund, Washington, DC, USA)

  • David-Jan Jansen

    (De Nederlandsche Bank, Amsterdam, The Netherlands)

Abstract

We study whether increased clarity of central bank reports on monetary policy can reduce volatility of returns in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level. In contrast to much of the recent literature, we find only limited evidence of a negative relationship between clarity of monetary policy reports and market volatility. We conclude that reducing volatility using clearer reports is not straightforward, especially in times of crisis.

Suggested Citation

  • Ales Bulir & Martin Cihak & David-Jan Jansen, 2018. "Does the Clarity of Monetary Policy Reports Reduce Volatility in Financial Markets?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(1), pages 2-17, February.
  • Handle: RePEc:fau:fauart:v:68:y:2018:i:1:p:2-17
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    References listed on IDEAS

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    More about this item

    Keywords

    central bank communication; clarity; financial markets; monetary policy reports; volatility;
    All these keywords.

    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

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