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Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets

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  • Christoph Moser
  • Axel Dreher

Abstract

Central bank governor changes in emerging markets may convey important signals about future monetary policy. Based on a new daily data set, this paper examines the reactions of foreign exchange markets, domestic stock market indices and sovereign bond spreads to central bank governor changes. The data cover 20 emerging markets over the period 1992-2006. We find that the replacement of a central bank governor negatively affects financial markets on the announcement day. This negative effect is mainly driven by irregular changes, i.e., changes occurring before the scheduled end of tenure, sending negative signals about perceived central bank independence. Personal characteristics of the central banker, to the contrary, are less important for market reactions. We find no evidence that changes in the central banker’s conservatism affect the reactions of the markets. Finally, market reactions are similar in countries with high and low degrees of central bank independence.

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  • Christoph Moser & Axel Dreher, 2007. "Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets," KOF Working papers 07-177, KOF Swiss Economic Institute, ETH Zurich.
    • Handle: RePEc:kof:wpskof:07-177
    DOI: 10.3929/ethz-a-005474690
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    7. Förch, Thomas & Sunde, Uwe, 2012. "Central bank independence and stock market returns in emerging economies," Economics Letters, Elsevier, vol. 115(1), pages 77-80.
    8. Peterson K. Ozili, 2020. "Does competence of central bank governors influence financial stability?," Future Business Journal, Springer, vol. 6(1), pages 1-20, December.
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    10. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2017. "Does central bank independence affect stock market volatility?," Research in International Business and Finance, Elsevier, vol. 42(C), pages 855-864.
    11. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    12. Prachi Mishra & Ariell Reshef, 2019. "How Do Central Bank Governors Matter? Regulation and the Financial Sector," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 369-402, March.
    13. Ozili, Peterson K, 2020. "Does competence of central bank governors influence financial stability?," MPRA Paper 102042, University Library of Munich, Germany.
    14. Cep Jandi Anwar & Indra Suhendra, 2023. "Measuring Response of Stock Market to Central Bank Independence Shock," SAGE Open, , vol. 13(1), pages 21582440231, February.
    15. Fuchs, Andreas & Richert, Katharina, 2018. "Development Minister Characteristics and Aid Giving," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 186-204.
    16. Fuchs, Andreas & Richert, Katharina, 2015. "Do Development Minister Characteristics Affect Aid Giving?," Working Papers 0604, University of Heidelberg, Department of Economics.
    17. Neuenkirch, Matthias & Tillmann, Peter, 2014. "Superstar Central Bankers," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100489, Verein für Socialpolitik / German Economic Association.
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    20. Anwar, Cep Jandi, 2021. "Heterogeneity Effect of Central Bank Independence on Asset Prices: Evidence from Selected Developing Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 65-80.
    21. Ghosh, Saibal, 2017. "Does central bank governors term in office matter for macroprudential policies? Evidence from MENA banks," Research in International Business and Finance, Elsevier, vol. 40(C), pages 34-51.
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    23. Mohammad Abdul Munim Joarder & A. K. M. Nurul Hossain & Monir Uddin Ahmed, 2016. "Does the central bank contribute to the political monetary cycles in Bangladesh?," Economic Change and Restructuring, Springer, vol. 49(4), pages 365-394, November.
    24. Conrad, Christian & Hartmann, Matthias, 2019. "On the determinants of long-run inflation uncertainty: Evidence from a panel of 17 developed economies," European Journal of Political Economy, Elsevier, vol. 56(C), pages 233-250.

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    More about this item

    Keywords

    central bank governor turnover; monetary policy; emerging markets; risk premium;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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