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Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?

Ales Bulir (), Martin Cihak () and David-Jan Jansen

No 14/175, IMF Working Papers from International Monetary Fund

Abstract: We study whether clarity of central bank inflation reports affects return volatility in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level, a standard readability measure. We find some evidence, mainly for the euro area, of a negative relationship between clarity and market volatility prior to and during the early stage of the global financial crisis. As the crisis unfolded, there is no longer robust evidence of a negative connection. We conclude that reducing noise using clear reports is possible but not without challenges, especially in times of crisis.

Keywords: Capital market volatility; Central banks and their policies; Central banks; Financial markets; Inflation; Public information; central bank communication, clarity, inflation reports, volatility, central bank, monetary policy, financial market, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects), (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk and nep-mon
Date: 2014-09-24
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Working Paper: Does the clarity of inflation reports affect volatility in financial markets? (2014) Downloads
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