Gauging Market Responses to Monetary Policy Communication

91 Pages Posted: 8 Dec 2019

See all articles by Kevin L. Kliesen

Kevin L. Kliesen

Federal Reserve Bank of St. Louis - Research Division

Brian Levine

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: 2019

Abstract

The modern model of central bank communication suggests that central bankers prefer to err on the side of saying too much rather than too little. The reason is that most central bankers believe that clear and concise communication of monetary policy helps achieve their goals. For the Federal Reserve, this means to achieve its goals of price stability, maximum employment, and stable long-term interest rates. This article examines the various dimensions of Fed communication with the public and financial markets and how Fed communication with the public has evolved over time. We use daily and intraday data to document how Fed communication affects key financial market variables. We find that Fed communication is associated with changes in prices of financial market instruments such as Treasury securities and equity prices. However, this effect varies by type of communication, by type of instrument, and by who is doing the speaking.

JEL Classification: E52, E58, E61, G10

Suggested Citation

Kliesen, Kevin L. and Levine, Brian and Waller, Christopher J., Gauging Market Responses to Monetary Policy Communication (2019). Review, Vol. 101, Issue 2, pp. 69-91, 2019, Available at SSRN: https://ssrn.com/abstract=3494158 or http://dx.doi.org/10.20955/r.101.69-91

Kevin L. Kliesen (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Brian Levine

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

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