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Do Markets Care Who Chairs the Central Bank?

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  • KENNETH N. KUTTNER
  • ADAM S. POSEN

Abstract

This paper assesses the impact of central bank governor appointments on exchange rates and bond yields using a new data set of announcements spanning 15 countries and 30 years. The results show that exchange rates exhibit a statistically significant response to the announcement of a new governor, especially when the appointee's identity was not anticipated. The reactions are especially pronounced for banks lacking either independence or a nominal anchor. New governors are not generally thought to lack credibility, however, as announcements generally do not cause exchange rate or bond yield movements signaling expectations of higher inflation or looser monetary policy. Copyright (c) 2010 The Ohio State University Peterson Institute for International Economics.

Suggested Citation

  • Kenneth N. Kuttner & Adam S. Posen, 2010. "Do Markets Care Who Chairs the Central Bank?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 347-371, March.
  • Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:2-3:p:347-371
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    Cited by:

    1. Christoph Moser & Axel Dreher, 2010. "Do Markets Care about Central Bank Governor Changes? Evidence from Emerging Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1589-1612, December.
    2. Neuenkirch, Matthias & Tillmann, Peter, 2014. "Superstar Central Bankers," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100489, Verein für Socialpolitik / German Economic Association.
    3. Juan José Echavarría & Luis Fernando Melo & Mauricio Villamizar, 2014. "The Impact of Foreign Exchange Intervention in Colombia. An Event Study Approach," Revista Desarrollo y Sociedad, Universidad de los Andes – Facultad de Economía – CEDE, November.
    4. Carbone, Jared C. & Gazzale, Robert S., 2017. "A shared sense of responsibility: Money versus effort contributions in the voluntary provision of public goods," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 74-87.
    5. Petra Gerlach-Kristen, 2008. "The Role of the Chairman in Setting Monetary Policy: Individualistic vs. Autocratically Collegial MPCs," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 119-143, September.
    6. Carlos Carvalho & Tiago Fl´orido & Eduardo Zilberman, "undated". "Transitions in Central Bank Leadership," Textos para discussão 657, Department of Economics PUC-Rio (Brazil).
    7. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2017. "Does central bank independence affect stock market volatility?," Research in International Business and Finance, Elsevier, vol. 42(C), pages 855-864.
    8. Kenneth Kuttner & Adam Posen, 2011. "How Flexible Can Inflation Targeting Be and Still Work?," Department of Economics Working Papers 2011-10, Department of Economics, Williams College, revised Sep 2011.
    9. Ghosh, Saibal, 2017. "Does central bank governors term in office matter for macroprudential policies? Evidence from MENA banks," Research in International Business and Finance, Elsevier, vol. 40(C), pages 34-51.
    10. Prachi Mishra & Ariell Reshef, 2019. "How Do Central Bank Governors Matter? Regulation and the Financial Sector," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 369-402, March.
    11. Iain McMenamin & Michael Breen & Juan Muñoz-Portillo, 2015. "Austerity and credibility in the Eurozone," European Union Politics, , vol. 16(1), pages 45-66, March.
    12. Alin Marius Andries & Anca Maria Podpiera & Nicu Sprincean, 2022. "Central Bank Independence and Systemic Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 81-130, March.
    13. Matthias Neuenkirch & Peter Tillmann, 2016. "Does A Good Central Banker Make A Difference?," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1541-1560, July.
    14. Matthias Neuenkirch & Florian Neumeier, 2015. "Party affiliation rather than former occupation: the background of central bank governors and its effect on monetary policy," Applied Economics Letters, Taylor & Francis Journals, vol. 22(17), pages 1424-1429, November.
    15. Yiwei Fang & Iftekhar Hasan & Loretta J. Mester, 2011. "Institutional Structure and Effectiveness of Central Banks during the Financial Crisis: An Empirical Analysis," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 7, Edward Elgar Publishing.
    16. Farvaque Etienne & Hammadou Hakim & Stanek Piotr, 2011. "Selecting Your Inflation Targeters: Background and Performance of Monetary Policy Committee Members," German Economic Review, De Gruyter, vol. 12(2), pages 223-238, May.
    17. Emile van Ommeren & Giulia Piccillo, 2021. "The Central Bank Governor and Interest Rate Setting by Committee," CESifo Economic Studies, CESifo, vol. 67(2), pages 155-185.
    18. Colin Weiss, 2020. "Contractionary Devaluation Risk: Evidence from the Free Silver Movement, 1878-1900," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 705-720, October.
    19. Hartmann, Matthias & Conrad, Christian, 2014. "Cross sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100477, Verein für Socialpolitik / German Economic Association.
    20. Förch, Thomas & Sunde, Uwe, 2012. "Central bank independence and stock market returns in emerging economies," Economics Letters, Elsevier, vol. 115(1), pages 77-80.
    21. Peterson K. Ozili, 2020. "Does competence of central bank governors influence financial stability?," Future Business Journal, Springer, vol. 6(1), pages 1-20, December.
    22. repec:zbw:bofitp:2020_013 is not listed on IDEAS
    23. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    24. Ozili, Peterson K, 2020. "Does competence of central bank governors influence financial stability?," MPRA Paper 102042, University Library of Munich, Germany.
    25. Comanescu , Anton, 2012. "Central Bank Transparency and Monetary Policy Effectiveness," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 6(4), pages 61-88, July.

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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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