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Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?

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  • Ales Bulir
  • Martin Cihak
  • David-Jan Jansen

Abstract

We study whether clarity of central bank inflation reports affects return volatility in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level, a standard readability measure. We find some evidence, mainly for the euro area, of a negative relationship between clarity and market volatility prior to and during the early stage of the global financial crisis. As the crisis unfolded, there is no longer robust evidence of a negative connection. We conclude that reducing noise using clear reports is possible but not without challenges, especially in times of crisis.

Suggested Citation

  • Ales Bulir & Martin Cihak & David-Jan Jansen, 2014. "Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?," IMF Working Papers 14/175, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/175
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    Cited by:

    1. Vincent Lim CS, "undated". "Press Releases and MPC Minutes Are They One And The Same," Working Papers wp23, South East Asian Central Banks (SEACEN) Research and Training Centre.
    2. David Bholat & Stephen Hans & Pedro Santos & Cheryl Schonhardt-Bailey, 2015. "Text mining for central banks," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 33, March.
    3. Marc Dobler & Simon T Gray & Diarmuid Murphy & Bozena Radzewicz-Bak, 2016. "The Lender of Last Resort Function after the Global Financial Crisis," IMF Working Papers 16/10, International Monetary Fund.
    4. repec:eee:jbfina:v:80:y:2017:i:c:p:33-50 is not listed on IDEAS

    More about this item

    Keywords

    Capital market volatility; Central banks and their policies; Central banks; Financial markets; Inflation; Public information; central bank communication; clarity; inflation reports; volatility; central bank; monetary policy; financial market; Financial Markets and the Macroeconomy; Monetary Policy (Targets; Instruments; and Effects);

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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