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Central Bank Communication in the Financial Crisis: Evidence from a Survey of Financial Market Participants

  • Bernd Hayo
  • Matthias Neuenkirch

In this paper, we study whether central bank communication has a positive effect on market participants’ perception of central banks’ (i) credibility, (ii) unorthodox measures, and (iii) independence. We utilise a survey of more than 550 financial market participants from around the world who answered questions in reference to the Bank of England (BoE), the Bank of Japan (BoJ), the European Central Bank (ECB), and the Federal Reserve (Fed). We find that market participants believe that the Fed communicates best, followed by the BoE, ECB, and BoJ. Similar rankings are found on the issues of credibility, satisfaction with unconventional monetary policy, and possible deterioration in independence. Using ordered probit models, we show that central bank communication has a positive effect on how central banks are perceived and understood, as it enhances credibility, increases satisfaction with unorthodox measures, and fosters perceived independence of central banks.

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File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2014-01.pdf
File Function: Second version, 2014
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Paper provided by University of Trier, Department of Economics in its series Research Papers in Economics with number 2014-01.

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Length: 30 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:trr:wpaper:201401
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Web page: http://www.uni-trier.de/index.php?id=2118
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  1. Oberlechner, Thomas & Hocking, Sam, 2004. "Information sources, news, and rumors in financial markets: Insights into the foreign exchange market," Journal of Economic Psychology, Elsevier, vol. 25(3), pages 407-424, June.
  2. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  3. Blinder, Alan S. & Ehrmann, Michael & de Haan, Jakob & Fratzscher, Marcel & Jansen, David-Jan, 2008. "Central Bank communication and monetary policy: a survey of theory and evidence," Working Paper Series 0898, European Central Bank.
  4. Gruener Hans Peter & Hayo Bernd & Hefeker Carsten, 2009. "Unions, Wage Setting and Monetary Policy Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, October.
  5. Michael Woodford, 2005. "Central Bank Communication and Policy Effectiveness," NBER Working Papers 11898, National Bureau of Economic Research, Inc.
  6. Bernd Hayo & Matthias Neuenkirch, 2009. "Do Federal Reserve Communications Help Predict Federal Funds Target Rate Decisions?," MAGKS Papers on Economics 200925, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Neuenkirch, Matthias, 2013. "Monetary policy transmission in vector autoregressions: A new approach using central bank communication," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4278-4285.
  8. Bernd Hayo & Pierre-Guillaume Méon, 2013. "Behind closed doors: Revealing the ECB’s Decision Rule," Working Papers CEB 13-025, ULB -- Universite Libre de Bruxelles.
  9. Maria Demertzis & Andrew Hughes Hallet, 2003. "Central Bank Transparency in Theory and Practice," DNB Staff Reports (discontinued) 105, Netherlands Central Bank.
  10. Menkhoff, L., 1998. "The noise trading approach -- questionnaire evidence from foreign exchange," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 547-564, June.
  11. Bernd Hayo & Ummad Mazhar, 2014. "Monetary Policy Committee Transparency: Measurement, Determinants, and Economic Effects," Open Economies Review, Springer, vol. 25(4), pages 739-770, September.
  12. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
  13. David-Jan Jansen & Jakob De Haan, 2009. "Has ECB communication been helpful in predicting interest rate decisions? An evaluation of the early years of the Economic and Monetary Union," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 1995-2003.
  14. Menkhoff, Lukas & Nikiforow, Marina, 2009. "Professionals' endorsement of behavioral finance: Does it impact their perception of markets and themselves?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 318-329, August.
  15. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  16. repec:ner:tilbur:urn:nbn:nl:ui:12-172467 is not listed on IDEAS
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