Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212917 
Authors: 
Year of Publication: 
2019
Series/Report no.: 
BOFIT Discussion Papers No. 9/2019
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper tests whether the People's Bank of China's communication affects expectations of market participants and matters as a monetary policy instrument. For that purpose, we first rely on a computational linguistic tool to measure the tone of PBC speeches and second, we use a high frequency methodology to estimate the effect of tone on stock prices. Our results show that positive changes of the tone affect positively stock prices in the Shanghai and the Shenzhen stocks markets. Additional extensions show that PBC communication does not have a persistent e ect on stock prices and that the tone of PBC communication still has a positive and significant impact on stock prices even when controlling for all the monetary policy instruments implemented by the central bank. Hence, our findings show that PBC communication matters as a monetary policy instrument to shape market expectations and to move asset prices.
Subjects: 
Central Bank Communication
People's Bank of China Sentiment
Financial Markets
JEL: 
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-272-3
Document Type: 
Working Paper

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