The Impact of Monetary Policy Communication in an Emerging Economy (original) (raw)

How effective is central bank communication in emerging economies? An empirical analysis of the chinese money markets responses to the people’s bank of China’s policy communications

Review of Quantitative Finance and Accounting, 2019

Central banks, in both developed and developing economies, are responding to the increased demand for transparency in monetary policy formulation and implementation. It is argued that central bank communication enhances market efficiency and calms down market volatility. This paper investigates to what extent that the People Bank of China's (PBC) communication influences the Chinese money market. Three communication indexes were constructed and used in the empirical analysis. The findings indicate that the PBC's communication has a significant effect on the country's money market. Secondly, informal communication appears to be more effective than formal communication. Overall, the results suggest that policy makers and market observers could pay much more attention to the informal communications, such as speeches of the bank's officials, than formal ones, such as the bank's report and minutes.

A textual analysis of central bank communication the case of Indonesia

2021

The objective of this paper is two-fold: (1) to assess the textual aspects of the Central Bank of Indonesia's monetary policy communication and (2) identify their potential relation to the inflation expectations. Using monthly policy interest rate press release announcements, we found that the text readability is relatively stable, although the text complexity is higher. However, the clarity and readability of the text are negatively correlated with the inflation expectations. Meanwhile, the tone of the text is positively associated with the inflation expectations. They suggest that the central bank should strengthen the quality of the text announced and pay more attention to the informal communication channels. The high quality and use of informal communication channels provide additional pieces of information in shaping price expectations in the future. Citation: Haryo Kuncoro and Gatot Nazir Ahmad and Dianta Sebayang, (2021) ''A textual analysis of central bank commun...

Central Bank Communication and Policy Interest Rate

International Journal of Financial Research, 2020

Central bank communications play an important role in the monetary policy. In the inflation-targeting frameworks, central bank communications might guide public to shape inflation expectations and then determine actual inflation rates through which the policy interest rates policy would manage them. This paper studied the impact and central bank monetary policy communications on the policy interest rate. Unlike other studies, this paper uses two stages. First, we estimate the impact of central bank communication on the inflation expectation gap. Second, we use the estimated value of inflation expectation gap to predict the policy interest rate. The study found evidence that economic agents analyse the Governor Board of Central Bank of Indonesia meeting decisions every month to shape their inflation expectation. Therefore, the difference between inflation expectation and actual inflation tends to narrow. The inflation expectation gap affects the policy interest rates in Indonesia. In...

Central bank communication and monetary policy: A survey of theory and evidence

2008

Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication --mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. However, the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy. model could be closed by appending a central bank reaction function (e.g., a "Taylor rule"):

Managing expectations by words and deeds: monetary policy in Asia and the Pacific

2008

We examine some of the most basic devices that major central banks in Asia and the Pacific use to communicate with markets. First, we consider gradualism and reversal aversion in the setting of policy rates. We argue that in a world of uncertainty these patterns of behavior help market participants form expectations of future policy rates. Second, we analyse the statements released at the time of policy decisions and suggest that it is not so much the length of the statement that matters but the extent to which it focuses on forward-looking information. We then propose two tests for the effectiveness of central bank communication. The first is a version of the expectations hypothesis of the term structure of interest rates, which is a joint test of the effectiveness of communication and the informational efficiency of the domestic fixedincome market. The second is a surprises test, which compares the reaction of longer term interest rates to policy announcements with the reaction to macroeconomic news.

Writing Clearly: ECB’ s Monetary Policy Communication

2008

The paper presents a methodology for measuring the clarity of central bank communication, illustrating it with the case of the European Central Bank (ECB) in 1999-2007. The analysis identifies the ECB's written communication as clear about 95 percent of instances, which is comparable to, or even better than, other central banks for which a similar analysis is available. We also find that the additional information contained in the ECB's Monthly Bulletins helps to improve communication clarity compared to ECB's press releases. In ...