It's Not Only What is Said, it's Also Who the Speaker is - Evaluating the Effectiveness of Central Bank Communication

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.

Central bank communication and social media: From silence to Twitter

“…The literature has also investigated the role of the communication sender, that is, whether communication is done by a committee (Kohn & Sack, 2003; Andersson et al., 2006; Reinhart & Sack, 2006; Reeves & Sawicki, 2007; Andersson et al., 2009) or an individual (Jansen & De Haan, 2004; Ehrmann & Fratzscher, 2007; Rozkrut, 2008). For example, Reeves and Sawicki (2005) find that communication made on behalf of the entire policy‐making committee is a particularly strong market mover relative to communication delivered on a personal basis.…”