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

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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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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 07-177.

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Length: 46 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:kof:wpskof:07-177
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Keywords: central bank governor turnover; monetary policy; emerging markets; risk premium;

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Find related papers by 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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Cited by:

  1. Matthias Neuenkirch & Peter Tillmann, 2013. "Does a Good Central Banker make a Difference?," MAGKS Papers on Economics 201354, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Förch, Thomas & Sunde, Uwe, 2012. "Central bank independence and stock market returns in emerging economies," Economics Letters, Elsevier, vol. 115(1), pages 77-80.

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