Mexico’s Monetary Policy Communication and Money Markets

Alicia Garcia-Herrero, Eric Girardin () and Arnoldo Lopez-Marmolejo
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Alicia Garcia-Herrero: Bruegel - affiliation inconnue, HKUST - Hong Kong University of Science and Technology
Arnoldo Lopez-Marmolejo: Inter-American Development Bank - Inter-American Development Bank
Authors registered in the RePEc Author Service: Arnoldo López Marmolejo and Alicia Garcia Herrero

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Abstract: Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico's communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit. In this paper, we tackle this issue empirically by using our own index of the tone of communication based on Banco de Mexico's speeches and statements and find that Mexican money markets do not only listen but they also understand the stance of monetary policy conveyed in the central bank's words. Regarding the ability to listen we find that both the volatility and volume in the money market rates change right after communication from Banco de Mexico's governing body. As for the markets' understanding, we document a statistically significant rise in money market rates the more hawkish communication is. All in all, our results show strong evidence of effective oral and written communication from the Central Bank towards Mexico's money markets.

Keywords: Mexico monetary policy communication; money market (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02402656v1
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Citations: View citations in EconPapers (1)

Published in International Journal of Economics and Finance, 2019, 11 (2), pp.81. ⟨10.5539/ijef.v11n2p81⟩

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Working Paper: Mexico’s monetary policy communication and money markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02402656

DOI: 10.5539/ijef.v11n2p81

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