Central Bank Communication and the Management of Market Confidence: Two Episodes in 2013 in the U.S. and Japan

Koichiro Kamada

No 14-E-1, Bank of Japan Research Laboratory Series from Bank of Japan

Abstract: Confidence has a strong influence on security prices and volatility, but has received little attention in mainstream macroeconomics. Kamada and Miura (2014) have recently revived this concept in their double-layered model of private and public information and shown how herding behavior emerges in sovereign bond markets. This article looks at two episodes that occurred in 2013 in the U.S. and Japan and uses their model to explain how the interest rate hikes and subsequent increase in volatility emerged. The analysis indicates that central bank communication is a promising policy tool to manage market confidence, but at the same time, could create unintended market turbulence.

Keywords: Central bank; communication; market confidence; bond market; volatility (search for similar items in EconPapers)
JEL-codes: D40 D83 E58 G12 (search for similar items in EconPapers)
Date: 2014-12-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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