Does the clarity of central bank communication affect volatility in financial markets? Evidence from Humphrey-Hawkins testimonies

David Jan Jansen*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

By applying readability statistics to the Humphrey-Hawkins testimonies given by the Federal Reserve Chairman, it is tested whether the clarity of central bank communication affects volatility in financial markets. There are three results. First, when clarity matters, it has a diminishing effect on volatility. Second, clarity of communication matters mostly for volatility of medium-term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's Chairmanship. Overall, the analysis illustrates the importance of transparent communication on monetary policy.

Original languageEnglish
Pages (from-to)494-509
Number of pages16
JournalContemporary Economic Policy
Volume29
Issue number4
DOIs
Publication statusPublished - Oct 2011
Externally publishedYes

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