The long-run information effect of central bank communication

Stephen Hansen, Michael McMahon and Matthew Tong

No 2363, Working Paper Series from European Central Bank

Abstract: Why do long-run interest rates respond to central bank communication? Whereas existing explanations imply a common set of signals drives short and long-run yields, we show that news on economic uncertainty can have increasingly large effects along the yield curve. To evaluate this channel, we use the publication of the Bank of England’s Inflation Report, from which we measure a set of high-dimensional signals. The signals that drive long-run interest rates do not affect short-run rates and operate primarily through the term premium. This suggests communication plays an important role in shaping perceptions of long-run uncertainty. JEL Classification: E52, E58, C55

Keywords: communication; machine learning; monetary policy (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-big, nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The long-run information effect of central bank communication (2019)
Working Paper: The long-run information effect of central bank communication (2019)
Working Paper: The Long-Run Information Effect of Central Bank Communication (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202363

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