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

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  • MICHAEL EHRMANN
  • MARCEL FRATZSCHER

Abstract

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.

Suggested Citation

  • Michael Ehrmann & Marcel Fratzscher, 2009. "Purdah-On the Rationale for Central Bank Silence around Policy Meetings," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 517-528, March.
  • Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:2-3:p:517-528
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    References listed on IDEAS

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    1. Jeffery D. Amato & Stephen Morris & Hyun Song Shin, 2002. "Communication and Monetary Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 18(4), pages 495-503.
    2. Frederic S Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting, Reserve Bank of Australia.
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    8. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Communication and decision-making by central bank committees: different strategies, same effectiveness?," Working Paper Series 488, European Central Bank.
    9. Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue aug, pages 399-474.
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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