Purdah: on the rationale for central bank silence around policy meetings

Michael Ehrmann and Marcel Fratzscher

No 868, Working Paper Series from European Central Bank

Abstract: Despite substantial differences in monetary policy and communication strategies, many central banks share the practice of purdah, a self-imposed guideline of abstaining from communication around policy meetings or other important events. This practice is remarkable, as it seems to contradict the virtue of transparency by requiring central banks to withhold information precisely when it is sought after intensely. However, imposing such a limit to communication has often been justified on grounds that such communication may create excessive market volatility and unnecessary speculation. This short paper assesses the purdah for the Federal Reserve. The empirical results confirm the conjecture 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 to statements in the purdah before FOMC meetings than during other times, and market volatility increases (compared to a volatility reduction induced by statements otherwise). The findings thus offer relevant insights about the limits to central bank transparency. JEL Classification: E58, E52, E43

Keywords: communication; effectiveness; Federal Reserve; interest rates; monetary policy; purdah; transparency (search for similar items in EconPapers)
Date: 2008-02
Note: 203739
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Purdah-On the Rationale for Central Bank Silence around Policy Meetings (2009)
Journal Article: Purdah—On the Rationale for Central Bank Silence around Policy Meetings (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2008868

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