Purdah-On the Rationale for Central Bank Silence around Policy Meetings

Michael Ehrmann () and Marcel Fratzscher ()

Journal of Money, Credit and Banking, 2009, vol. 41, issue 2-3, pages 517-528

Abstract: Many central banks share the practice of "purdah", a guideline of abstaining from communication around policy meetings. Although seemingly contradicting the virtue of transparency by withholding information precisely when it is sought after intensely, it has been justified on grounds that such communication may create excessive market volatility. This paper assesses the purdah for the Federal Reserve and confirms that financial markets are substantially more sensitive to central bank communication around policy meetings. Short-term interest rates react three to four times more strongly in the purdah before Federal Open Market Committee meetings than otherwise, and volatility increases (compared to a reduction otherwise). Copyright (c) 2009 The Ohio State University.

Date: 2009

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