Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets

49 Pages Posted: 5 Nov 2007

See all articles by Christoph Moser

Christoph Moser

Johannes Gutenberg University Mainz - Faculty of Law and Economics

Axel Dreher

Heidelberg University

Date Written: December 2007

Abstract

Central bank governor changes in emerging markets may convey important signals about future monetary policy. Based on a new daily data set, this paper examines the reactions of foreign exchange markets, domestic stock market indices and sovereign bond spreads to central bank governor changes. The data cover 20 emerging markets over the period 1992-2006. We find that the replacement of a central bank governor negatively affects financial markets on the announcement day. This negative effect is mainly driven by irregular changes, i.e., changes occurring before the scheduled end of tenure, sending negative signals about perceived central bank independence. Personal characteristics of the central banker, to the contrary, are less important for market reactions. We find no evidence that changes in the central banker's conservatism affect the reactions of the markets. Finally, market reactions are similar in countries with high and low degrees of central bank independence.

Keywords: central bank governor turnover, monetary policy, emerging markets, risk premium

JEL Classification: E58, E42, F30, G14

Suggested Citation

Moser, Christoph and Dreher, Axel, Do Markets Care About Central Bank Governor Changes? Evidence from Emerging Markets (December 2007). CESifo Working Paper Series No. 2177, KOF Working Paper No. 177, Paolo Baffi Centre Research Paper No. 2008-09, Available at SSRN: https://ssrn.com/abstract=1027562 or http://dx.doi.org/10.2139/ssrn.1027562

Christoph Moser (Contact Author)

Johannes Gutenberg University Mainz - Faculty of Law and Economics ( email )

Chair of Corporate Finance
D-55099 Mainz, 55128
Germany

Axel Dreher

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

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