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Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility

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  • Robert S. Chirinko
  • Christopher Curran

Abstract

This paper presents empirical evidence on one aspect of central bank communication policy – formal pronouncements by central bankers – to better understand whether this channel matters and, if so, the nature of the information being transmitted. We examine the relationship between three types of pronouncements from Chairman Alan Greenspan -- speeches, testimonies, and FOMC meetings (STF’s) -- and volatility in the 30-year U.S. Treasury bond futures market. Using high-frequency, intraday data proves important in uncovering the impacts of pronouncements on the bond market. Three questions relevant to central bank communication policy are addressed (see Figure 1 for a summary). We find that STF’s matter for bond market volatility, that this impact depends on the transmission of information (rather than just noise), and that this information reflects both substantive content and a coordinating signal. We further find that speeches only deliver content, that testimonies are largely a coordinating device, and that FOMC meetings play both roles. These findings of an important coordination channel document the relevance of the “global games” model of Morris and Shin and the “herding” model of Banerjee and the associated policy implication that pronouncements by the central bank may reduce welfare by overwhelming important private information.

Suggested Citation

  • Robert S. Chirinko & Christopher Curran, 2013. "Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility," CESifo Working Paper Series 4236, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4236
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    References listed on IDEAS

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    Cited by:

    1. Donato Masciandaro & Davide Romelli, 2016. "From Silence to Voice: Monetary Policy, Central Bank Governance and Communication," BAFFI CAREFIN Working Papers 1627, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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