Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?

30 Pages Posted: 22 Oct 2014

See all articles by Aleš Bulíř

Aleš Bulíř

International Monetary Fund (IMF)

Martin Čihák

International Monetary Fund (IMF)

David-Jan Jansen

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

We study whether clarity of central bank inflation reports affects return volatility in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level, a standard readability measure. We find some evidence, mainly for the euro area, of a negative relationship between clarity and market volatility prior to and during the early stage of the global financial crisis. As the crisis unfolded, there is no longer robust evidence of a negative connection. We conclude that reducing noise using clear reports is possible but not without challenges, especially in times of crisis.

Keywords: Inflation, Central banks, Public information, Capital market volatility, Financial markets, central bank communication, clarity, inflation reports, monetary policy, stock returns, stock market, national bank, monetary fund, bonds, government bonds, stock index, financial stability, bond yields, monetary policy decisions, monetary policies, government bond yields, financial volatility, monetary authorities, financial instruments, stock market volatility

JEL Classification: E44, E58, E52

Suggested Citation

Bulir, Ales and Cihak, Martin and Jansen, David-Jan, Does the Clarity of Inflation Reports Affect Volatility in Financial Markets? (September 2014). IMF Working Paper No. 14/175. Available at SSRN: https://ssrn.com/abstract=2513262

Ales Bulir (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Martin Cihak

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

David-Jan Jansen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

HOME PAGE: http://sites.google.com/site/djansenresearch

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