Monetary policy communication under inflation targeting: Do words speak louder than actions?

Selva Demiralp, Hakan Kara and Pýnar Özlü ()
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Pýnar Özlü: Central Bank of Turkey Research and Monetary Policy Department

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: This paper assesses the effectiveness of monetary policy communication of the Central Bank of Turkey (CBT) by quantifying the information content of the policy statements released right after the monthly Monetary Policy Committee meetings. First, we quantify the signal regarding the next interest rate decision and ask whether CBT’s words match its deeds, i.e., whether communication improves predictability using the Autoregressive Conditional Hazard model. Our findings suggest that the role of statements in predicting the next policy move have strengthened following the adoption of full-fledged inflation targeting (IT) regime. Second, we identify the surprise component of policy communication directly from market commentaries and assess its impact on the term structure of interest rates. We find that the response of the yield curve to policy statements have become highly significant for the unanticipated changes in the monetary policy communication and the relative importance of communication in driving market yields has increased through time.

Keywords: Central Bank Communication; Predictability; Transparency (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2011-10
New Economics Papers: this item is included in nep-ara, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Monetary Policy Communication Under Inflation Targeting: Do Words Speak Louder Than Actions? (2011)
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