Non-Monetary News in Central Bank Communication
63 Pages Posted: 25 Jun 2018 Last revised: 12 Jul 2018
Date Written: June 16, 2018
We quantify the importance of non-monetary news in central bank communication. Using evidence from four major central banks and a comprehensive classification of events, we decompose central bank communication into news about (i) monetary policy, (ii) economic growth, and (iii) shocks to risk preferences. Our approach exploits high-frequency comovement of stocks and interest rates combined with monotonicity restrictions across the yield curve. We find significant differences in news composition depending on the communication channel used by central banks. Non-monetary news prevails in about 40% of policy decision announcements by the Fed and the ECB; this fraction is even higher for communications that provide context to policy decision such as press conferences. We show that non-monetary news accounted for a major part of financial markets' reaction during the financial crisis and in the early recovery, while monetary shocks have gained importance since 2013.
Keywords: central bank communication, monetary policy shocks, yield curve, stock-bond comovement, central bank information effects, risk premia
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