EconPapers    
Economics at your fingertips  
 

Understanding the impact of monetary policy announcements: The importance of language and surprises

L.A. Smales and Nicholas Apergis ()

Journal of Banking & Finance, 2017, vol. 80, issue C, 33-50

Abstract: Monetary policy announcements have a significant impact on financial market liquidity. This study provides a novel perspective on the factors driving this relationship in the market for 10-year Treasury note futures: Target rate surprises and the complexity of the monetary policy statement language are important determinants. Differences of opinion resulting from interpretation of complex language appear to result in more trading volume despite relatively low levels of liquidity (a negative liquidity-volume relationship), while large target rate surprises reduce trading activity (a positive liquidity-volume relationship). The dynamic changes over time, as unconventional polices are adopted by monetary authorities and, high frequency traders become more pervasive. Central bankers may aid market liquidity by minimizing surprises, and issuing statements that are easier to understand (with shorter sentences and more familiar words).

Keywords: Monetary policy decisions; Financial markets; Federal Reserve; Linguistic complexity; FOMC statements; 10-year Treasury note futures (search for similar items in EconPapers)
JEL-codes: G1 G10 G12 G14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426617300742
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:80:y:2017:i:c:p:33-50

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-11-07
Handle: RePEc:eee:jbfina:v:80:y:2017:i:c:p:33-50