Monetary Policy Communication Under Inflation Targeting: Do Words Speak Louder Than Actions?

Selva Demiralp, Hakan Kara and Pınar Özbay Özlü

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

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 communication improves predictability. 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, especially after the implementation of the IT. We also compare the yield curve impact of the surprise component of policy decisions (actions) with the surprises in policy communication (words). Our results suggest that the relative importance of communication in driving market yields have 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)
Date: 2011
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 (1)

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https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2011/11-18 (application/pdf)

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Working Paper: Monetary policy communication under inflation targeting: Do words speak louder than actions? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1118

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