During the past few years, monetary policy communication has become a hot topic in as far as it seems to have become a very relevant way for central banks to guide markets, beyond actual monetary policy decisions.
Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico’s communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit
May 4, 2015
Follow what I do and also what I say: monetary policy impact on Brazil’s financial markets
We find that futures rates increase (decrease) after both an increase in the reference interest rate and a hawkish (dovish) communication by the BCB. Moreover, BCB words create more “noise”, since they increase volatility of futures rates. Our analysis reveals that BCB communication has increased its effectiveness after the 2008 crisis, while deeds became less relevant.