The long-run information effect of central bank communication

By Stephen Hansen, Michael McMahon, Matthew Tong. Journal of Monetary Economics, 2019

144 citations recorded by the source corpus.

Why do long-run interest rates respond to central bank communication? Whereas existing explanations imply a common set of signals drives short and long-run yields, we show that news on economic uncertainty can have increasingly large effects along the yield curve. To evaluate this channel, we use the publication of the Bank of England’s Inflation Report, from which we measure a set of high-dimensional signals. The signals that drive long-run interest rates do not affect short-run rates and operate primarily through the term premium. This suggests communication plays an important role in shaping perceptions of long-run uncertainty. JEL Classification: E52, E58, C55

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/61a7f890a2bd124cf3b426cd59cf28d1d7749ba1

Citations in the corpus

• The Voice of Monetary Policy (2021, unknown): “This result is in line with the notion that central bank communication can shape uncertainty about future economic conditions (Hansen et al., 2019).”