Francesco D’Acunto, Daniel Hoang, Maritta Paloviita, Michael Weber
{"title":"Effective Policy Communication: Targets Versus Instruments","authors":"Francesco D’Acunto, Daniel Hoang, Maritta Paloviita, Michael Weber","doi":"10.2139/ssrn.3712658","DOIUrl":"https://doi.org/10.2139/ssrn.3712658","url":null,"abstract":"Communication targeting households and firms has become a stand-alone policy tool of many central banks. But which forms of communication, if any, can reach ordinary people and manage their economic expectations effectively? In a large-scale randomized control trial, we show that communication manages expectations when it focuses on policy targets and objectives rather than on the instruments designed to reach such objectives. It is especially the least sophisticated demographic groups, whom central banks typically struggle to reach, who react more to target-based communication. When exposed to target-based communication, these groups are also more likely to believe that policies will benefit households and the economy. Target-based communication enhances policy effectiveness and contributes to strengthen the public’s trust in central banks, which is crucial to ensure the effectiveness of their policies.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134550201","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Does Inflation Targeting Help Information Transmission?","authors":"Satadru Das, J. Surti, Shekhar Tomar","doi":"10.2139/ssrn.3701541","DOIUrl":"https://doi.org/10.2139/ssrn.3701541","url":null,"abstract":"This paper studies the informational impact of inflation targeting on financial market volatility in an emerging market context by using a novel monetary policy regime-switching approach. We find that the changeover to inflation targeting in India did not result in a greater impact of monetary policy surprises on bond and equity market volatility. We rule out financial frictions as a factor driving our results. Our evidence-based textual analysis of central bank policy announcements shows an increased focus on inflation, but not on growth, possibly explaining why the equity market impact of monetary policy announcements remained weak even after inflation targeting.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129218900","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Monetary Policy Surprises and Corporate Credit Spreads","authors":"Difang Huang, Xinjie Wang, Z. Zhong","doi":"10.2139/ssrn.3700257","DOIUrl":"https://doi.org/10.2139/ssrn.3700257","url":null,"abstract":"We study the effects of monetary policy surprises (MPSs) on corporate credit default swap (CDS) spreads. Using high-frequency surprises around Federal Open Market Committee (FOMC) announcements, we find a negative relation between changes in unexpected expansionary monetary policy and changes in CDS spreads using both panel regressions and time-series regressions. More importantly, we show that there is a strong cross-sectional effect of MPSs on CDS spreads. Unexpected expansionary monetary policy reduces the flight-to-safety and flight-to-liquidity phenomenon: The credit spread between investment-grade and high-yield CDSs narrows significantly following an unexpected monetary policy. Finally, we show that monetary policy affects CDS spreads through cash flow, financial constraints, and risk channels.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125149431","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Mandates and Monetary Rules in a New Keynesian Framework","authors":"S. Deák, P. Levine, T. Pham","doi":"10.2139/ssrn.3702618","DOIUrl":"https://doi.org/10.2139/ssrn.3702618","url":null,"abstract":"We develop a general mandate framework for delegating monetary policy to an instrument-independent, but goal-dependent central bank. The goal of the mandate consists of: (i) a simple quadratic a loss function that penalizes deviations from target macroeconomic variables; (ii) a form of a Taylor-type nominal interest-rate rule that responds to the same target variables; (iii) a zero-lower-bound constraint on the the nominal interest rate and (iv) a long-run (steady-state) inflation target. The central bank remains free to choose the strength of its response to the targets specified by the mandate. An estimated standard New Keynesian model is used to compute household-welfare-optimal mandates with these features. We find two main results that are robust across a number of different mandates: first, the optimized rule takes the form of a Taylor simple rule close to a price-level rule. Second, the optimal level of inflation target, conditional on a quarterly frequency (probability) of the nominal interest hitting the ZLB of 0.025, is close to the typical target annual inflation of 2% and to achieve a lower probability of 0.01 requires an inflation target of 3.5%.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121219618","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
B. Fabo, Martina Jančoková, Elisabeth Kempf, Ľuboš Pástor
{"title":"Fifty Shades of QE: Comparing Findings of Central Bankers and Academics","authors":"B. Fabo, Martina Jančoková, Elisabeth Kempf, Ľuboš Pástor","doi":"10.2139/ssrn.3779630","DOIUrl":"https://doi.org/10.2139/ssrn.3779630","url":null,"abstract":"Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"193 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122511242","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Why Do Central Banks Make Public Announcements of Open Market Operations?","authors":"Narayan Bulusu","doi":"10.2139/ssrn.3690452","DOIUrl":"https://doi.org/10.2139/ssrn.3690452","url":null,"abstract":"Central banks make public the results of open market operations (OMOs), which they use to adjust the liquidity available to the financial system to maintain the short-term borrowing rate in the range compatible with achieving their monetary policy objectives. This paper shows that such announcements are costly because they moderate the impact of changes in supply achieved through OMOs. Nevertheless, communication of OMOs is desirable because it improves the transparency of the funding market, which makes the price of liquidity—a key input into economic decision making—more reflective of underlying demand and supply of liquidity.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130683095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Hengjie Ai, Leyla Jianyu Han, Xuhui (Nick) Pan, Lai Xu
{"title":"The Cross Section of Monetary Policy Announcement Premium","authors":"Hengjie Ai, Leyla Jianyu Han, Xuhui (Nick) Pan, Lai Xu","doi":"10.2139/ssrn.3338889","DOIUrl":"https://doi.org/10.2139/ssrn.3338889","url":null,"abstract":"Using the expected option-implied variance reduction to measure the sensitivity of stock returns to monetary policy announcement surprises, this paper shows that monetary policy announcements require significant risk compensation in the cross section of equity returns. We present evidence that our sensitivity measure captures the exposure of stock returns with respect to growth rate expectations. We develop a parsimonious equilibrium model in which FOMC announcements reveal the Federal Reserve's interest rate target, which affects the expected growth rate of the economy. Our model accounts for the dynamics of implied variances and the cross section of the monetary policy announcement premium realized around FOMC announcement days.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134569718","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Interest Rate Setting and Communication at the ECB","authors":"Philippine Cour-Thimann, Alexander Jung","doi":"10.1016/J.EJPOLECO.2021.102039","DOIUrl":"https://doi.org/10.1016/J.EJPOLECO.2021.102039","url":null,"abstract":"","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120703654","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Central Bank Independence and Democracy: Does Transparency Matter?","authors":"Asmaa Ezzat, M. Fayed","doi":"10.5709/ce.1897-9254.334","DOIUrl":"https://doi.org/10.5709/ce.1897-9254.334","url":null,"abstract":"Securing central bank independence (CBI) is considered a vital and common practice in a large number of countries, since this independence is often associated with favorable economic performance, and it isolates monetary policy from the distortions of political business cycles, associated with electoral business or partisan cycles. However, one criticism against CBI is the seemed contradiction between independence and democracy, known as the problem of accountability of the monetary authority. Thus, this study empirically examines the potential effects of central bank transparency and independence on democracy. This would, in turn, attribute to reconciling the presumed contradiction between CBI and democracy, besides disentangling the impact of independence and transparency on democracy. To this end, we regress democracy on both CBI and CB transparency, besides some control variables, for a sample of 100 central banks in year 2010. The preliminary results indicate that CBI is conducive to democracy. However, this relationship is dependent on the level of CB transparency, where high levels of transparency could reverse this positive relation and make CBI an obstacle in face of democracy. Furthermore, CB’s transparency is always associated with more democracy, but increasing the level of CBI reduces this positive impact.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121200210","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Examine Taylor’s Rule and Create a Regression Model for Federal Funds Rate 2005–2015","authors":"Xinye Yang","doi":"10.2139/ssrn.3607643","DOIUrl":"https://doi.org/10.2139/ssrn.3607643","url":null,"abstract":"In recent years, John Taylor's famous 1993 paper, \"Discretion Versus Policy Rules in Practice,\" has revolutionized the way many policymakers at central banks think about monetary policy. In fact, the Taylor rule, which is based on deviations of inflation from its target and output gaps, can be helpful to describe policy actions in the past and indicate how federal funds rate should be set in the future based on the state of the economy (Taylor). In this paper, we are going to use his paper, \"Discretion Versus Policy Rules in Practice,\" as a guide to analyzing how monetary policy has been conducted in the decade of 2005-2015 and how the Taylor Rule can help us understand the economy.","PeriodicalId":138376,"journal":{"name":"ERN: Central Banks - Policies (Topic)","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116584805","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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