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Central Bank Communication and the Management of Market Confidence: Two Episodes in 2013 in the U.S. and Japan

Author

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  • Koichiro Kamada

    (Bank of Japan)

Abstract

Confidence has a strong influence on security prices and volatility, but has received little attention in mainstream macroeconomics. Kamada and Miura (2014) have recently revived this concept in their double-layered model of private and public information and shown how herding behavior emerges in sovereign bond markets. This article looks at two episodes that occurred in 2013 in the U.S. and Japan and uses their model to explain how the interest rate hikes and subsequent increase in volatility emerged. The analysis indicates that central bank communication is a promising policy tool to manage market confidence, but at the same time, could create unintended market turbulence.

Suggested Citation

  • Koichiro Kamada, 2014. "Central Bank Communication and the Management of Market Confidence: Two Episodes in 2013 in the U.S. and Japan," Bank of Japan Research Laboratory Series 14-E-1, Bank of Japan.
    • Handle: RePEc:boj:bojlab:lab14e01
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    Cited by:

    1. Kamada, Koichiro & Kurosaki, Tetsuo & Miura, Ko & Yamada, Tetsuya, 2022. "Central bank policy announcements and changes in trading behavior: Evidence from bond futures high frequency price data," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).

    More about this item

    Keywords

    Central bank; communication; market confidence; bond market; volatility;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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