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Do Markets Care Who Chairs the Central Bank?

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  • Kenneth N. Kuttner
  • Adam S. Posen

Abstract

This paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy. To measure these effects, we assemble a new dataset of appointment announcements from 15 countries, and conduct an event study analysis on exchange rates, bond yields, and stock prices. The analysis reveals a significant reaction of exchange rates and bond yields to unexpected appointments. The reactions are not unidirectional, and thus do not suggest new governors suffer from a generic credibility problem. Federal Reserve chairman appointments stand out in terms of their unusually pronounced effects on financial markets.

Suggested Citation

  • Kenneth N. Kuttner & Adam S. Posen, 2007. "Do Markets Care Who Chairs the Central Bank?," NBER Working Papers 13101, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13101
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    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.
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    9. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters,in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Christoph Moser & Axel Dreher, 2010. "Do Markets Care about Central Bank Governor Changes? Evidence from Emerging Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1589-1612, December.
    2. Juan José Echavarría & Luis Fernando Melo & Mauricio Villamizar, 2014. "The Impact of Foreign Exchange Intervention in Colombia. An Event Study Approach," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, November.
    3. Carbone, Jared C. & Gazzale, Robert S., 2017. "A shared sense of responsibility: Money versus effort contributions in the voluntary provision of public goods," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 74-87.
    4. Petra Gerlach-Kristen, 2008. "The Role of the Chairman in Setting Monetary Policy: Individualistic vs. Autocratically Collegial MPCs," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 119-143, September.
    5. Carlos Carvalho & Tiago Fl´orido & Eduardo Zilberman, "undated". "Transitions in Central Bank Leadership," Textos para discussão 657, Department of Economics PUC-Rio (Brazil).
    6. Juan José Echavarría & Luis Fernando Melo Velandia & Mauricio Villamizar, 2013. "The Impact of Different Types of Foreign Exchange Intervention: An Event Study Approach," Borradores de Economia 784, Banco de la Republica de Colombia.
    7. repec:eee:riibaf:v:42:y:2017:i:c:p:855-864 is not listed on IDEAS
    8. Kenneth Kuttner & Adam Posen, 2011. "How Flexible Can Inflation Targeting Be and Still Work?," Department of Economics Working Papers 2011-10, Department of Economics, Williams College, revised Sep 2011.
    9. 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.
    10. Iain McMenamin & Michael Breen & Juan Muñoz-Portillo, 2015. "Austerity and credibility in the Eurozone," European Union Politics, , vol. 16(1), pages 45-66, March.
    11. 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, July.
    12. Yiwei Fang & Iftekhar Hasan & Loretta J. Mester, 2011. "Institutional Structure and Effectiveness of Central Banks during the Financial Crisis: An Empirical Analysis," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 7 Edward Elgar Publishing.
    13. Etienne Farvaque & Hakim Hammadou & Piotr Stanek, 2011. "Selecting Your Inflation Targeters: Background and Performance of Monetary Policy Committee Members," German Economic Review, Verein für Socialpolitik, vol. 12(2), pages 223-238, May.
    14. Hartmann, Matthias & Conrad, Christian, 2014. "Cross sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100477, Verein für Socialpolitik / German Economic Association.
    15. Förch, Thomas & Sunde, Uwe, 2012. "Central bank independence and stock market returns in emerging economies," Economics Letters, Elsevier, vol. 115(1), pages 77-80.
    16. 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.
    17. repec:mbr:jmonec:v:6:y:2012:i:4:p:61-88 is not listed on IDEAS

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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