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Does People's Bank of China Communication Matter? Evidence from Stock Market Reaction

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  • Hamza Bennani

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper tests whether the communication of the People's Bank of China affects market expectations and matters as a monetary policy tool. For that purpose, we first rely on a computational linguistic tool to measure the tone of PBC speeches and second, we use a high frequency methodology to estimate the effect of tone on stock price. Our results show that positive changes of the tone affect positively stock price in the Shanghai and the Shenzhen stocks markets. Additional extensions show that PBC communication still has a positive and significant impact on stock price even when controlling for all the monetary policy instruments implemented by the central bank, but that this impact is not persistent over time. One potential channel through which PBC tone affects stock prices is the risk-based channel of monetary policy.

Suggested Citation

  • Hamza Bennani, 2019. "Does People's Bank of China Communication Matter? Evidence from Stock Market Reaction," Post-Print hal-02127840, HAL.
    • Handle: RePEc:hal:journl:hal-02127840
    DOI: 10.1016/j.ememar.2019.05.002
    Note: View the original document on HAL open archive server: https://hal.science/hal-02127840
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    Cited by:

    1. Chen, Hongyi & Tillmann, Peter, 2021. "Monetary policy uncertainty in China," Journal of International Money and Finance, Elsevier, vol. 110(C).
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    3. Wang, Hao & Xu, Ning & Yin, Haiyan & Ji, Hao, 2022. "The dynamic impact of monetary policy on financial stability in China after crises," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    4. Thierry Warin & Aleksandar Stojkov, 2023. "“Decoding” Policy Perspectives: Structural Topic Modeling of European Central Bankers’ Speeches," JRFM, MDPI, vol. 16(7), pages 1-23, July.
    5. Valerio Astuti & Alessio Ciarlone & Alberto Coco, 2022. "The role of central bank communication in inflation-targeting Eastern European emerging economies," Temi di discussione (Economic working papers) 1381, Bank of Italy, Economic Research and International Relations Area.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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