IDEAS home Printed from https://ideas.repec.org/p/nbp/nbpmis/47.html
   My bibliography  Save this paper

It’s not only WHAT is said, it’s also WHO the speaker is. Evaluating the effectiveness of central bank communication

Author

Listed:
  • Marek Rozkrut

Abstract

On the basis of a unique database of policy makers’ comments, we find that central bank communication does influence behavior of financial markets. This effect is asymmetric and depends on the contents and direction of the statements. Moreover, we investigate whether individual characteristics of MPC members may influence their ability to affect the asset prices. We find that market participants are most vigilant to the comments made by policy makers who are relatively reticent, usually win voting and match their words with deeds. Moreover, the impact of statements on financial market behavior depends on whether a speaker represents a hawkish, dovish or neutral faction within the committee. Finally, we provide evidence that central bank communication affects the predictability of monetary policy decisions.

Suggested Citation

  • Marek Rozkrut, 2008. "It’s not only WHAT is said, it’s also WHO the speaker is. Evaluating the effectiveness of central bank communication," NBP Working Papers 47, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:47
    as

    Download full text from publisher

    File URL: https://static.nbp.pl/publikacje/materialy-i-studia/47_en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. Jeffery D. Amato & Stephen Morris & Hyun Song Shin, 2002. "Communication and Monetary Policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 18(4), pages 495-503.
    3. Frederic S Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.),The Future of Inflation Targeting, Reserve Bank of Australia.
    4. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-1070, December.
    5. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    6. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
    7. Camille Cornand & Frank Heinemann, 2008. "Optimal Degree of Public Information Dissemination," Economic Journal, Royal Economic Society, vol. 118(528), pages 718-742, April.
    8. Roman Matousek, 2001. "Transparency and Credibility of Monetary Policy in Transition Countries: The Case of the Czech Republic," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 4(2), pages 91-104, November.
    9. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 201-212, April.
    10. David-Jan Jansen & Jakob de Haan, 2006. "Look who's talking: ECB communication during the first years of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 219-228.
    11. Bjørn-Roger Wilhelmsen & Andrea Zaghini, 2011. "Monetary policy predictability in the euro area: an international comparison," Applied Economics, Taylor & Francis Journals, vol. 43(20), pages 2533-2544.
    12. Alex Cukierman, 2009. "The Limits of Transparency," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 38(1‐2), pages 1-37, February.
    13. Blinder, Alan S., 2007. "Monetary policy by committee: Why and how?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 106-123, March.
    14. Eijffinger, Sylvester C W & Hoeberichts, Marco & Schaling, Eric, 2000. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(2), pages 218-235, May.
    15. Lyziak, Tomasz & Mackiewicz, Joanna & Stanislawska, Ewa, 2007. "Central bank transparency and credibility: The case of Poland, 1998-2004," European Journal of Political Economy, Elsevier, vol. 23(1), pages 67-87, March.
    16. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Communication and decision-making by central bank committees: different strategies, same effectiveness?," Working Paper Series 488, European Central Bank.
    17. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Wiley Blackwell, vol. 37(2), pages 181-209, June.
    18. Stephen Morris & Hyun Song Shin & Hui Tong, 2006. "Social Value of Public Information: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con: Reply," American Economic Review, American Economic Association, vol. 96(1), pages 453-455, March.
    19. Henrik Jensen, 2002. "Optimal Degrees of Transparency in Monetary Policymaking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 399-422, September.
    20. Friedrich Heinemann & Katrin Ullrich, 2007. "Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 155-185, June.
    21. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    22. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
    23. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2006. "How Much Information should Interest Rate-Setting Central Banks Reveal?," IHEID Working Papers 08-2006, Economics Section, The Graduate Institute of International Studies.
    24. Ellis Connolly & Marion Kohler, 2004. "News and Interest Rate Expectations: A Study of Six Central Banks," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.),The Future of Inflation Targeting, Reserve Bank of Australia.
    25. King, Mervyn, 1997. "Changes in UK monetary policy: Rules and discretion in practice," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 81-97, June.
    26. Lars E. O. Svensson, 2006. "Social Value of Public Information: Comment: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con," American Economic Review, American Economic Association, vol. 96(1), pages 448-452, March.
    27. Roman Matousek, 2001. "Transparency and Credibility of Monetary Policy in Transition Countries: The Case of the Czech Republic," Archive of Monetary Policy Division Working Papers 2001/37, Czech National Bank.
    28. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    29. Andersson, Malin & Dillen, Hans & Sellin, Peter, 2006. "Monetary policy signaling and movements in the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1815-1855, November.
    30. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
    31. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Social value of public information: testing the limits to transparency," Working Paper Series 821, European Central Bank.
    32. Otmar Issing, 2005. "Communication, transparency, accountability: monetary policy in the twenty-first century," Review, Federal Reserve Bank of St. Louis, vol. 87(Mar), pages 65-83.
    33. Stefan Gerlach, 2007. "Interest Rate Setting by the ECB, 1999-2006: Words and Deeds," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 1-46, September.
    34. Jansen, David-Jan & De Haan, Jakob, 2005. "Talking heads: the effects of ECB statements on the euro-dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 343-361, March.
    35. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
    36. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    37. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 176-206, March.
    38. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Allard, Julien & Catenaro, Marco & Vidal, Jean-Pierre & Wolswijk, Guido, 2013. "Central bank communication on fiscal policy," European Journal of Political Economy, Elsevier, vol. 30(C), pages 1-14.
    2. Freddy H. CASTRO, 2012. "Senales de política monetaria y movimientos en la estructura a plazo de la tasa de interés en Colombia," Archivos de Economía 9908, Departamento Nacional de Planeación.
    3. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy, Twitter and financial markets: evidence from social media traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Mariusz Kapuściński, 2017. "Monetary policy and financial asset prices in Poland," Bank i Kredyt, Narodowy Bank Polski, vol. 48(3), pages 263-294.
    5. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2020. "Tweeting on Monetary Policy and Market Sentiments: The Central Bank Surprise Index," BAFFI CAREFIN Working Papers 20134, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy and financial markets: evidence from Twitter traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Donato Masciandaro & Davide Romelli, 2016. "From Silence to Voice: Monetary Policy, Central Bank Governance and Communication," BAFFI CAREFIN Working Papers 1627, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 176-206, March.
    2. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    3. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    4. Ehrmann, Michael & Fratzscher, Marcel, 2007. "The timing of central bank communication," European Journal of Political Economy, Elsevier, vol. 23(1), pages 124-145, March.
    5. repec:pri:cepsud:161blinder is not listed on IDEAS
    6. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
    7. Jakob de Haan & David-Jan Jansen, 2009. "The communication policy of the European Central Bank: An overview of the first decade," DNB Working Papers 212, Netherlands Central Bank, Research Department.
    8. van der Cruijsen, C.A.B. & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency : A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.
    9. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    10. Bruno Ducoudre, 2008. "Structure par terme des taux d’intérêt et anticipations de la politique économique," Sciences Po publications info:hdl:2441/5221, Sciences Po.
    11. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Social value of public information: testing the limits to transparency," Working Paper Series 821, European Central Bank.
    12. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 509-541, March.
    13. Ma, Yong & Li, Shushu, 2015. "Bayesian estimation of China's monetary policy transparency: A New Keynesian approach," Economic Modelling, Elsevier, vol. 45(C), pages 236-248.
    14. Alan S. Blinder, 2008. "Talking about Monetary Policy: The Virtues (and Vices?) of Central Bank Communication," Working Papers 1048, Princeton University, Department of Economics, Center for Economic Policy Studies..
    15. Alan S. Blinder, 2008. "Talking about Monetary Policy: The Virtues (and Vices?) of Central Bank Communication," Working Papers 1048, Princeton University, Department of Economics, Center for Economic Policy Studies..
    16. Jakob Haan, 2008. "The effect of ECB communication on interest rates: An assessment," The Review of International Organizations, Springer, vol. 3(4), pages 375-398, December.
    17. Ngomba Bodi, Francis Ghislain & Tadadjeu Wemba, Dessy-Karl & Soulemanou, Soulemanou, 2020. "Transparence des Banques Centrales et efficacité de la politique monétaire : quelles implications pour la Banque des Etats de l’Afrique Centrale ? [Central Bank's Transparency and effectiveness of ," MPRA Paper 116436, University Library of Munich, Germany.
    18. Michael Ehrmann & Marcel Fratzscher, 2013. "Dispersed communication by central bank committees and the predictability of monetary policy decisions," Public Choice, Springer, vol. 157(1), pages 223-244, October.
    19. Shambaugh, George E. & Shen, Elaine B., 2018. "A clear advantage: The benefits of transparency to crisis recovery," European Journal of Political Economy, Elsevier, vol. 55(C), pages 391-416.
    20. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics.
    21. Michael J. Lamla & Sarah M. Rupprecht, 2006. "The Impact of ECB Communication on Financial Market Expectations," KOF Working papers 06-135, KOF Swiss Economic Institute, ETH Zurich.
    22. Crowe, Christopher & Meade, Ellen E., 2008. "Central bank independence and transparency: Evolution and effectiveness," European Journal of Political Economy, Elsevier, vol. 24(4), pages 763-777, December.

    More about this item

    Keywords

    Monetary policy; Central bank; Transparency; Communication;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbp:nbpmis:47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jakub Growiec (email available below). General contact details of provider: https://edirc.repec.org/data/nbpgvpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.