Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148144
Authors: 
Ehrmann, Michael
Talmi, Jonathan
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-37
Abstract: 
Press releases announcing and explaining monetary policy decisions play a critical role in the communication strategy of central banks. Because of their market-moving potential, it is particularly important how they are drafted. Often, central banks start from the previous statement and update the earlier text with only small changes. This way, it is straightforward to compare statements and see how the central bank's thinking has evolved. This paper studies to what extent such similarity in central bank statements matters for the reception of their content in financial markets. Using the case of the Bank of Canada (the G7 central bank that had to rely the least on unconventional monetary policy following the global financial crisis and has therefore broadly continued standard monetary policy communications), the paper shows that press releases with larger differences in wording lead to higher volatility in financial markets, suggesting that their content is more difficult to absorb. At the same time, while press releases that are similar to the previous one generate less market volatility, once their wording is updated, volatility increases substantially.
Subjects: 
Central bank research
Financial markets
Interest rates
JEL: 
E43
E52
E58
Document Type: 
Working Paper

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