Non-Monetary News in Central Bank Communication

Abstract

We quantify the importance of non-monetary news in central bank communication.Using evidence from four major central banks and a comprehensive classification of events, we decompose news conveyed by central banks into news about monetary policy, economic growth, and separately, shocks to risk premia.Our approach exploits high-frequency comovement of stocks and interest rates combined with monotonicity restrictions across the yield curve.We find significant differences in news composition depending on the communication channel used by central banks.Non-monetary news prevails in about 40% of policy decision announcements by the Fed and the ECB, and this fraction is even higher for communications that provide context to policy decisions such as press conferences.We show that non-monetary news accounts for a significant part of financial markets' reaction during the financial crisis and in the early recovery, while monetary shocks gain importance since 2013.

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