Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility

62 Pages Posted: 22 May 2013

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Christopher Curran

Emory University - Department of Economics

Date Written: May 21, 2013

Abstract

This paper presents empirical evidence on one aspect of central bank communication policy - formal pronouncements by central bankers - to better understand whether this channel matters and, if so, the nature of the information being transmitted. We examine the relationship between three types of pronouncements from Chairman Alan Greenspan - speeches, testimonies, and FOMC meetings (STF’s) - and volatility in the 30-year U.S. Treasury bond futures market. Using high-frequency, intraday data proves important in uncovering the impacts of pronouncements on the bond market. Three questions relevant to central bank communication policy are addressed (see Figure 1 for a summary). We find that STF’s matter for bond market volatility, that this impact depends on the transmission of information (rather than just noise), and that this information reflects both substantive content and a coordinating signal. We further find that speeches only deliver content, that testimonies are largely a coordinating device, and that FOMC meetings play both roles. These findings of an important coordination channel document the relevance of the “global games” model of Morris and Shin and the “herding” model of Banerjee and the associated policy implication that pronouncements by the central bank may reduce welfare by overwhelming important private information.

JEL Classification: E580, G140

Suggested Citation

Chirinko, Robert S. and Curran, Christopher, Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility (May 21, 2013). CESifo Working Paper Series No. 4236. Available at SSRN: https://ssrn.com/abstract=2267716

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Christopher Curran

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
404-727-6355 (Phone)
404-727-4639 (Fax)

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