Monetary Policy Communication Research Articles

New Evidence from the Monetary Policy Communication and Inflation Expectations Nexus in Africa

New Evidence from the Monetary Policy Communication and Inflation Expectations Nexus in Africa

Monetary Policy Communication during Nigeria’s 2016 Economic Recession: Insights from a Text Mining Analysis

Monetary Policy Communication during Nigeria’s 2016 Economic Recession: Insights from a Text Mining Analysis

Emotion in Euro Area Monetary Policy Communication and Bond Yields: The Draghi Era

Emotion in Euro Area Monetary Policy Communication and Bond Yields: The Draghi Era

Regulatory Institutions and National Economic Development in Nigeria

The financial sector is the epicenter of productive activity of an economy as it performs the vital role of financial intermediation, provider of payment services and the arbiter of monetary policy communication and implementation. Therefore, the objective of the study is to examine the effect of CBN as a regulatory institution on national economic development in Nigeria. The study used ex-post facto research design and the study covered a period of ten years (2011 – 2020). The study employed ordinary least square (OLS) method of estimation to establish the importance of the independent variables on the dependent’s variables. The findings revealed that Monetary policy Rate (MPR) has insignificant positive (202.2958/0.2296 ˃ 0.05) effect on the National Economic Development in Nigeria; Credit to Private Sector (CPS) has insignificant negative (-208.6998/0.1319 ˃ 0.05) effect on the National Economic Development in Nigeria; Liquidity Ratio (LQR) has significant negative (-57.09290/0.0503 = 0.05) effect liquidity ratio on the National Economic Development in Nigeria; and Interest rate (INT) has insignificant negative (-274.8069/0.1717 ˃ 0.05) effect liquidity ratio on the National Economic Development in Nigeria. The study concluded that the CBN current policies has been anti-people and over the years not having significant effect on economic development in Nigeria. The study recommended among other things that CBN should critically re-examines its regulatory policies to focus more on visionary policies that would cause the financial deepening indicators, monetary policy rate and exchange rate to positively and significantly engender development of the financial system. Central Bank of Nigeria should check mate their policy rates to ensure the prevention of inflation in the economy.

Are monetary policy shocks causal to bank health? Evidence from the euro area

Despite considerable efforts of the European Central Bank (ECB) to support bank intermediation after the 2008 financial crisis, the recovery of euro area banks remained incomplete. Although many studies indicate that central banks can influence the stock prices of firms through their policy actions and communication, a knowledge gap exists as to whether the ECB's monetary policy can influence bank health. Through a high-frequency identification approach, this study reveals that the causal effect of conventional monetary policy action and communication by the ECB on bank stock prices differed over time, whereas its influence on bank financing costs was robust. This study provides new evidence showing that information effects related to policy easing surprises in the aftermath of the 2008 financial crisis hampered the ECB efforts to improve bank health and that its Odyssean communication signals (related to forward-looking announcements of policy easing) supported bank health during this phase. Local projections suggest that the response of banks to monetary policy shocks displayed some persistence, where ECB policy surprises and communications that shifted up (down) the yield curve were normally positive (negative) for bank health. The findings solicit a new perspective when assessing the influence of the ECB's monetary policy measures on euro area banks.

Monetary Policy Communication and Financial Markets in India

Monetary Policy Communication and Financial Markets in India

Is it Time to Reassess the Focal Role of Core PCE Inflation in Assessing the Trend in PCE Inflation?

“Core” PCE inflation—that is, inflation in PCE-ex-food-and-energy—is widely used as an estimate of trend inflation. But it is long overdue for replacement. The original rationale of core inflation was to remove volatile items with transitory shocks. But aside from gasoline, the list of excluded items is far from optimal. Core inflation also su˙ers from other severe deficiencies, common to all exclusion indexes. Excluded items often have persistent trends; thus excluding them imparts a significant time-varying bias. Items that are not excluded can experience high volatility, and will cause exclusion indexes to depart notably from trend inflation—as core PCE has done at crucial moments. Two other prominent trend inflation measures, trimmed mean PCE inflation and median PCE inflation, gracefully address these issues (though neither is perfect). A wide variety of evidence comparing these three trend measures is provided. The findings indicate that, for a variety of considerations that are relevant for both trend inflation estimation and for monetary policy deliberations and communication, either trimmed mean PCE inflation or median PCE inflation are superior measures.

Policy Communication Through Artificial Intelligence in China and Western Countries

Communication has become the crucial key to a success of public policy both in China and Western countries. After more than thirty years of development, China and Western countries have made fruitful achievements. We made a comparative review of policy communication studies in three aspects: general situations, topics and theoretical prospects. Firstly, the trend of policy communication research from both sides are positive, and it focuses on the new topics brought by the development of artificial intelligence. Secondly, by applying artificial intelligence technology to the research, it is concluded that scholars focus on three topics: communication mechanism, crisis communication and monetary policy communication. Thirdly, policy communication studies have provided us with rich practical materials and useful theoretical exploration, but there is still a lack of attention to Chinese advanced policy communication practices and a profound understanding of the challenges in the context of artificial intelligence which is the direction worthy of scholars striving in in the future.

Monetary Policy Communications and Their Effects on Household Inflation Expectations

We study how different forms of communication influence the inflation expectations of individuals in a randomized controlled trial. We first solicit individuals’ inflation expectations in the Nielsen Homescan panel and then provide eight different forms of information regarding inflation. Reading the actual Federal Open Market Committee (FOMC) statement has about the same average effect on expectations as simply being told about the Federal Reserve’s inflation target. Reading a news article about the most recent FOMC meetings results in a forecast revision which is smaller by half. Our results have implications for how central banks should communicate to the broader public.

Chinese Asset Managers’ Monetary Policy Forecasts and Fund Performance

Although many central banks in the 21st century have become more transparent, Chinese monetary policy communications have been relatively opaque, suggesting that financial market participants must commit significant resources to predicting the central bank’s actions. We conduct a novel systematic textual analysis of the discussion in the quarterly reports of China fund managers, from which we infer their near-term expectations for monetary policy. We construct an aggregate index of manager expectations and show that, as a forecast of Chinese monetary policy, it compares favorably with both market- and model-based alternative projections. We also show that fund managers act on these expectations and correctly anticipating shifts in Chinese monetary policy improves fund performance. Our results imply that manager skill is an important determinant of fund returns, providing the first evidence from China on a question for which studies of asset management in other countries have reached conflicting conclusions. Finally, we find that expectations are more accurate for funds that commit more analytical resources, have higher management fees, or have stronger managerial educational background.This paper was accepted by Victoria Ivashina, finance.Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4330 .

The Federal Reserve's New Framework: Context and Consequences

<ns3:p>This paper discusses the Federal Reserve's new framework and highlights some important policy implications that flow from the revised consensus statement and the new strategy. In particular, it first discusses the factors that motivated the Federal Reserve in November 2018 to announce it would undertake in 2019 the first-ever public review of its monetary policy strategy, tools, and communication practices. It then considers the major findings of the review as codified in our new Statement on Longer-Run Goals and Monetary Policy Strategy and highlights some important policy implications that flow from them.</ns3:p>

Causality Analysis of South Africa Reserve Bank’s Monetary Policy Statements and Communication

This paper inspects whether the South Africa Reserve Bank’s (SARB) Monetary Policy Committee (MPC) statements trigger have a causality with newspaper reports from the Mail and Guardian between 2010 and 2021. The study examines whether SARB’s post MPC statements’ readability is reciprocated in the subsequent Mail and Guardian newspaper articles. Using the Flesch Reading Ease Score and Flesch-Kincaid Grade Level score as the methodology, there is a systematic unpacking of both SARB’s MPC statements and newspaper reports from the Mail and Guardian which yield a dataset which is subsequently used to create a computation. This computation is then used to examine whether SARB’s MPC statements Granger cause the subsequent Mail and Guardian newspaper articles. Resultantly, the results show that there is no Granger causality between the SARB’s MPC statements and the Mail and Guardian’s Flesch Reading Ease Score and Flesch-Kincaid Grade Level score.

Narrative Monetary Policy Surprises and the Media

AbstractWe propose a simple method to quantify narratives from textual data, and identify “narrative monetary policy surprises” as the difference in narrative focus in central bank communication accompanying interest rate meetings and economic media coverage prior to those meetings. Identifying narrative surprises, using Norwegian data, provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a significant effect on subsequent media coverage. Narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication, highlighting media's role as information intermediaries.

Central bank's communication and markets' reactions: Polish evidence

PurposeThis study contributes to the pool of knowledge about the impact of monetary policy communication of central banks on financial instruments' prices and assets' value in emerging markets.Design/methodology/approachEmpirical analysis is executed using the National Bank of Poland (NBP) announcements about its monetary policy covering the data from the broad financial market in its three main segments: stock market, foreign exchange market and bonds market. The reactions are measured relative to the changes in the NBP announcements and also with respect to investors' expectations. Autoregressive conditional heteroscedasticity (ARCH) models with dummy variables are used as the main methodological tool.FindingsBonds market and foreign exchange market are the most sensitive market segments, while interest rate and money supply are the most influential types of announcements. The changes of the revealed new macroeconomic figures had more impact on assets' prices movements than the deviations from their expectations. Moreover, greater diversity of the Monetary Policy Council (MPC) members' opinions on the voted motions, captured in the MPC voting reports, is associated with more cases of statistically significant NBP communication events.Practical implicationsThe findings have direct relevance for fund managers, portfolio analysts, investors and also for financial market regulators.Originality/valueThe results provide novel evidence about how the emerging financial market responds to monetary policy announcements. They help understand the nature of the impact of public information on financial assets' valuation and on movements of their prices, analysed comprehensively in three market segments, in the emerging market environment.

Assessment of the Clarity of Bank of Russia Monetary Policy Communication by Neural Network Approach

Inflation targeting requires clear and transparent central bank’s communication. Analysts and market participants understand it as a broad list of information disclosed by the central bank. The general public understands it rather as the ability of a central bank to speak and explain its decisions in a plain language. In recent decades, monetary authorities in many countries have made significant progress in this direction. However, there has been no research on the quality of communication for the Bank of Russia. This paper aims to create a tool for automated evaluation of the readability of the Bank of Russia’s monetary policy communication, taking into account the available experience of linguistic and textual analysis, including machine learning methods, as well as to provide recommendations for its improvement. This can contribute to improving the effectiveness of the Bank of Russia communication on monetary policy, which is vital for its credibility, anchoring inflation expectations, and predictability of the regulator’s decisions.

Central bank communication and the yield curve

In this paper, we argue that monetary policy in the form of central bank communication can shape long-term interest rates by changing risk premia. Using high-frequency movements of default-free rates and equity, we show that monetary policy communications by the European Central Bank on regular announcement days led to a significant yield spread between peripheral and core countries during the European sovereign debt crisis by increasing credit risk premia. We also show that central bank communication has a powerful impact on the yield curve outside regular monetary policy days. We interpret these findings through the lens of a model linking information embedded in central bank communication to sovereign yields.

Effects of Monetary Policy Communication in Emerging Market Economies: Evidence from Malaysia

By conducting a high-frequency event study similar to Gurkaynak et al. (2005), we find that two factors are needed to adequately capture the effects of monetary policy announcements for a non-inflation targeting emerging market economy, Malaysia. These factors are the surprise changes in the policy rate (Overnight Policy Rate, OPR) and the information about the future path of monetary policy. We find that the path factor has a strong influence on long-term government bond yields, corporate bond yields and spreads. Our findings are indicative of the view that monetary policy communication is mostly about revealing information pertaining to the central bank’s assessment of the economic outlook, as opposed to an unconditional binding commitment to follow a specific policy path.

Does Wall Street Understand Fed Speak? Monetary Policy Communication and Corporate Conference Calls

We uncover a tone transmission channel of monetary policy wherein the linguistic tone of press releases by the shapes the linguistic tone of macro-related dialogues in corporate conference calls occurring days after such releases. Applying machine-learning techniques to a granular dataset of dialogues between managers and equity analysts during conference calls, we find that the tone of macro-related dialogues is reflected in both contemporaneous stock market reactions as well as subsequent equity analysts' stock recommendations. Critically, the semantic content of monetary policy releases is consistently observed in macro dialogues between managers and analysts. A large sample analysis suggests that the effect of monetary policy tone on corporate conference calls is stronger in more recent years and for major unconventional monetary policy announcements. Taken together, our results shed light on how economic agents interpret Fed Speak,'' underscoring non-transitory effects of monetary policy communication.

Monetary Policy Communication: Perspectives from Former Policy Makers at the ECB

Monetary Policy Communication: Perspectives from Former Policy Makers at the ECB

Clear, Consistent and Engaging: ECB Monetary Policy Communication in a Changing World

This paper examines the importance of central bank communication in ensuring the effectiveness of monetary policy and in underpinning the credibility, accountability and legitimacy of independent central banks. It documents how communication has become a monetary policy tool in itself; one example of this being forward guidance, given its impact on inflation expectations, economic behaviour and inflation. The paper explains why and how consistent, clear and effective communication to expert and non-expert audiences is essential in an environment of an ever-increasing need by central banks to reach these audiences. Central banks must also meet the demand for more understandable information about policies and tools, while at the same time overcoming the challenge posed by the wider public’s rational inattention. Since the European Central Bank was established, the communications landscape has changed dramatically and continues to evolve. This paper outlines how better communication, including greater engagement with the wider public, could help boost people’s understanding of and trust in the Eurosystem. JEL Classification: E43, E52, E58