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Purdah-On the Rationale for Central Bank Silence around Policy Meetings

  • MICHAEL EHRMANN
  • MARCEL FRATZSCHER

Many central banks share the practice of "purdah", a guideline of abstaining from communication around policy meetings. Although seemingly contradicting the virtue of transparency by withholding information precisely when it is sought after intensely, it has been justified on grounds that such communication may create excessive market volatility. This paper assesses the purdah for the Federal Reserve and confirms that financial markets are substantially more sensitive to central bank communication around policy meetings. Short-term interest rates react three to four times more strongly in the purdah before Federal Open Market Committee meetings than otherwise, and volatility increases (compared to a reduction otherwise). Copyright (c) 2009 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2009.00219.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): 2-3 (03)
Pages: 517-528

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:2-3:p:517-528
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  1. Glenn D. Rudebusch & John C. Williams, 2006. "Revealing the secrets of the temple: the value of publishing central bank interest rate projections," Working Paper Series 2006-31, Federal Reserve Bank of San Francisco.
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  9. Frederic S. Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," NBER Working Papers 10829, National Bureau of Economic Research, Inc.
  10. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Transparency, disclosure and the federal reserve," Working Paper Series 0457, European Central Bank.
  11. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Communication and decision-making by central bank committees: different strategies, same effectiveness?," Working Paper Series 0488, European Central Bank.
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