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Does People's Bank of China communication matter? Evidence from stock market reaction

Hamza Bennani

No 9/2019, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

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.

Keywords: Central Bank Communication; People's Bank of China Sentiment; Financial Markets (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Journal Article: Does People's Bank of China communication matter? Evidence from stock market reaction (2019) Downloads
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