Article2009

Purdah—On the Rationale for Central Bank Silence around Policy Meetings

63 citations0/0 files storedJournal of money credit and banking

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Market Dynamics and Volatility

Abstract

Many central banks share the practice of purdah, a guideline of abstaining from communication around policy meetings. Although seemingly contradicting the virtue of transparency by withholding information precisely when it is sought after intensely, it has been justified on grounds that such communication may create excessive market volatility. This paper assesses the purdah for the Federal Reserve and confirms that financial markets are substantially more sensitive to central bank communication around policy meetings. Short‐term interest rates react three to four times more strongly in the purdah before Federal Open Market Committee meetings than otherwise, and volatility increases (compared to a reduction otherwise).

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References

1991Conditional Heteroskedasticity in Asset Returns: A New Approach 2002Social Value of Public Information 2003Zero Bound on Interest Rates and Optimal Monetary Policy 2004Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements 2000Federal Reserve Information and the Behavior of Interest Rates 1998Central Banking in Theory and Practice 2004Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment 2007Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?

Cited by

2012Communicating About Macro‐prudential Supervision – A New Challenge for Central Banks 2020Does central bank communication signal future monetary policy in a (post)-crisis era? The case of the ECB 2023Central bank communication and social media: From silence to Twitter 2013Do words matter? The impact of communication on the PIIGS' CDS and bond yield spreads during Europe's sovereign debt crisis 2011The Effects of Central Bank Communication on Financial Stability: a systematization of the empirical evidence

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