Understanding the impact of monetary policy announcements: The importance of language and surprises
Access Status
Authors
Date
2017Type
Metadata
Show full item recordCitation
Source Title
ISSN
School
Collection
Abstract
© 2017 Elsevier B.V.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).
Related items
Showing items related by title, author, creator and subject.
-
Wan Mohd Noor, Wan Shakizah (2012)Previous researches on non-monetary rewards have explored ways in which psychological phenomena can enhance the motivational power which may reduce or eliminate any inherent advantage of cash as an incentive to employees. ...
-
Philip, Abey (2012)Macro economist over the years have camped their argument on the tradeoff between inflation and unemployment on an economy. As monetary announcement of an economy has an important influence on both inflation and unemployment, ...
-
Mishra, A.; Burns, Kelly (2017)© 2017 Elsevier Inc. Using a structural VAR framework and unique bank liquidity index, this study builds a short run model to analyse dynamic interactions among monetary policy, bank liquidity, and bank lending in India. ...