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

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Listed author(s):
  • 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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File URL: http://dx.doi.org/10.3929/ethz-a-005474690
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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
Handle: RePEc:kof:wpskof:07-177
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Keywords: central bank governor turnover; monetary policy; emerging markets; risk premium;

Other versions of this item:

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. Perera, Anil & Wickramanayake, J., 2016. "Determinants of commercial bank retail interest rate adjustments: Evidence from a panel data model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 1-20.
  2. Carlos Carvalho & Tiago Fl´orido & Eduardo Zilberman, "undated". "Transitions in Central Bank Leadership," Textos para discussão 657, Department of Economics PUC-Rio (Brazil).
  3. 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.
  4. Matthias Neuenkirch & Peter Tillmann, 2016. "Does A Good Central Banker Make A Difference?," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1541-1560, 07.
  5. Förch, Thomas & Sunde, Uwe, 2012. "Central bank independence and stock market returns in emerging economies," Economics Letters, Elsevier, vol. 115(1), pages 77-80.
  6. Stephanos Papadamou & Moïse Sidiropoulos & Eleftherios Spyromitros, 2016. "Does Central Bank Independence Affect Stock Market Volatility?," Working Papers of BETA 2016-14, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  7. Fuchs, Andreas & Richert, Katharina, 2015. "Do Development Minister Characteristics Affect Aid Giving?," Working Papers 0604, University of Heidelberg, Department of Economics.

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