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Has the Clarity of Humphrey-Hawkins Testimonies Affected Volatility in Financial Markets?

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  • David-Jan Jansen

Abstract

By applying readability statistics to the Humphrey-Hawkins testimonies given by the Federal Reserve Chairman, I test whether the clarity of central bank communication affects volatility in financial markets. There are three key results. First, when clarity matters, the results are unequivocal: clarity diminishes volatility. Second, clarity of communication matters mostly for volatility of medium-term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's term at the Federal Reserve. Overall, the analysis shows the importance of transparent communication on monetary policy.

Suggested Citation

  • David-Jan Jansen, 2008. "Has the Clarity of Humphrey-Hawkins Testimonies Affected Volatility in Financial Markets?," DNB Working Papers 185, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:185
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20No%20185-2008_tcm46-202521.pdf
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    References listed on IDEAS

    as
    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
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    4. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 509-541, March.
    5. Diamond, Arthur M, Jr & Levy, David M, 1994. "The Metrics of Style: Adam Smith Teaches Efficient Rhetoric," Economic Inquiry, Western Economic Association International, vol. 32(1), pages 138-145, January.
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    7. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Social value of public information: testing the limits to transparency," Working Paper Series 821, European Central Bank.
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    13. Matthew C. Clayton & Jay C. Hartzell & Joshua Rosenberg, 2005. "The Impact of CEO Turnover on Equity Volatility," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1779-1808, September.
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    More about this item

    Keywords

    central bank communication; transparency; readability; financial markets; volatility;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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