Deciphering Delphic Guidance: The Bank of England and Brexit

Jagjit Chadha, Corrado Macchiarelli, Satyam Goel, Arno Hantzsche and Sathya Mellina

No 2024/160, IMF Working Papers from International Monetary Fund

Abstract: In response to the 2016 referendum on EU Membership and the ensuing uncertainty as to the eventual consequences of Brexit, the Bank of England (BoE) adopted various methods of influencing market rates, including conventional, unconventional monetary policy measures and communications on forward guidance. To investigate the effectiveness of BoE’s communication, we first decompose long-dated yields into a risk neutral and term premium component. Text-based analysis of Monetary Policy Committee minutes is then used to measure the stance of policy, attitudes to QE and Brexit. We show that the Bank’s communication strategy acted to complement the stance of monetary policy, which had responded by lowering Bank rate and expanding QE, and acted to lower the term premium that might otherwise have risen in response to Brexit uncertainty.

Keywords: UK referendum; Brexit; risk premium; monetary policy; central bank communication; text mining; BoE action; BoE strategy; Bank of England MPC communication; BoE's monetary policy; Brexit referendum; Yield curve; Unconventional monetary policies; Central bank policy rate; Sovereign bonds; Global (search for similar items in EconPapers)
Pages: 43
Date: 2024-07-19
New Economics Papers: this item is included in nep-cba and nep-mon
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