the institutions of monetary policy it is a great honor to be invited by this year s president elect marty feldstein to deliver the ely lecture marty has been my teacher mentor colleague and friend for over 30 years and i never cease to be amazed by the energy and imagination which he devotes to the study of economic problems i got to know marty during my time as a kennedy scholar at harvard in 1971 the kennedy scholarships form one part of britain s national memorial to president john f

derivatives of the nodal prices in market power screening abstract this paper proposes a novel method for market power screening this method is developed for horizontally and vertically consolidated power markets and is based on the optimal power flow opf model properties it undertakes the calculation and analysis of a matrix of derivatives of the nodal prices with respect to generating unit offer prices the analysis takes into consideration the influence of particular partakers and energy groups on the nodal prices this paper presents a theoretical analysis of the partakers and groups profits as well as a method for the market power screening moreover the issue wherein the lmp model generates prices above the highest bidding price is discussed illustrative case studies and case studies based on the polish wholesale balancing power market model are also presented

inconsistent voting behaviour in the fomc this article uses transcript data to examine determinants of inconsistent voting behaviour in the federal open market committee fomc in the period 1989 2008 inconsistent voting behaviour occurs

quantitative easing and the uk stock market does the bank of england information dissemination strategy matter we use intraday aggregate stock market data and an event study framework to assess the uk s equity market reaction to the unexpected element of the bank of england monetary policy committee s mpc asset purchase announcements for the 2009 2017 period we assess the reactions of equity returns and their volatility over various time frames both preceding and following the mpc announcements our results show that the uk unconventional monetary policy shocks have a significant impact on domestic equity returns and volatilities the strength of this impact depends on the bank s information dissemination through inflation reports and the publication of the mpc s voting records jel g14 e44 e52

monetary policy committees individual and collective reputations this paper looks at the incentives of individual members of a monetary policy committee to gain a reputation for inflationary toughness i show a policy maker can have more or less incentive to build a reputation when part of a group but group policy making leads to higher expected social welfare not publishing individuals votes raises the temptation to inflate and lowers expected social welfare if the culture or rules of a central bank puts more weight on senior policy makers the incentive to build a reputation is greater but expected social welfare may be higher or lower

the labor market for new ph d economists presents results from a survey of 450 new 1996 97 ph d economists providing information about employment underemployment employers work activities salaries and job satisfaction comparisons are made across ranks of the graduates ph d programs sectors of employment and subfields of economics as well as over time labor market outcomes for economists also are compared with those of seven other disciplines results indicate that a growing proportion of new economics ph d s start their careers in business or industry that an international market for new economics ph d s is evolving and that job outcomes for economists compare favorably with new ph d s in many other disciplines

does the currency board matter us news and argentine financial market reaction using a generalized autoregressive conditional heteroscedasticity garch model we study the effects of the us monetary policy and macroeconomic announcements on argentine money stock and foreign exchange markets over the period january 1998 to july 2007 we show first that both types of news have a significant impact on all markets second there are noticeable differences in reaction for different subsamples argentine money markets were more dependent on us news under the currency board than after it was abandoned as the floating exchange rate partly absorbs spillover effects from the us finally we find that the us dollar denominated assets react less to us news than peso denominated assets which suggests that the currency board was not completely credible during its final years

market power analysis for the iranian electricity market the market power problem in iranian electricity market is addressed in this study this paper by using various structural indices of market power and reviewing market results analyzes the intensity of competition in iran s electricity market and examines whether this market is functioning at an appropriate level of efficiency in this article the most well known indices of market power are calculated in two approaches for two different scenarios current situation and future outlook of generation sector s ownership in iran s power industry comparing the results of these scenarios promises more competitive market for the second scenario calculating residual supply index for iran s power market shows despite admissible values of concentration ratios due to supply scarcity during periods when the demand is close to the total available capacity some suppliers can exercise market power even with a relatively small market share the most important price and load indices like weighted average prices and load price duration curves of iranian electricity market during march 2007 march 2008 are also analyzed in this paper these results imply the existence of economic withholding the main limiting factors of competition and significant implemented countermeasures for market power mitigation in iran s electricity market are also mentioned

do as i do and also as i say monetary policy impact on brazil s financial markets we analyze how brazilian financial markets in particular interest rate futures react to monetary policy in terms of both deeds that is changes in the policy rate and words that is central bank communication using daily data from 2005 to 2014 we find that interest futures rates react in the expected direction to both the central bank s actions and its words futures rates rise fall after both an increase decrease in the reference interest rate and a hawkish dovish communication by the central bank of brazil we also find that the central bank s words create noise since they increase the volatility of futures rates our analysis further reveals that the effectiveness of monetary policy communication increased after the 2008 international crisis as measured by its larger impact on future rates and reduced volatility at the same time deeds became less relevant the effect of changes in the central bank s policy rate on futures rates declined

why did argentina s currency board collapse this paper sheds light on the risks associated with currency board arrangements referring to the severe liquidity crisis that emerged in argentina in november 2000 the inability of the argentinean economy to grow because of an overvalued peso and the massive borrowing needs of the government in the context of rapidly rising borrowing costs seriously undermined the credibility of the fixed exchange rate regime given the widespread dollarisation of the financial sector on the liability side argentina had arguably little choice but to stick to the currency board a series of measures aimed at reviving growth were implemented but with no signs of upturn in demand increasingly distrustful international investors and growing social unrest the country was forced into default in december 2001 putting an abrupt end to its decade long experiment with hard money this study shows that with rigid labour markets a lack of fiscal discipline and the absence of a natural anchor currency argentina was never a strong candidate for a hard peg

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

nobel laureate robert e lucas jr architect of modern macroeconomics in 1995 robert e lucas was awarded the nobel memorial prize for economic science this review places lucas s work in a historical context and evaluates the effect of this work on the economics profession lucas s central contribution is that he developed and applied economic theory to answer substantive questions in macroeconomics economists today routinely analyze systems in which agents operate in complex probabilistic environments to understand interactions about which the great theorists of an earlier generation could only speculate this sea change is due primarily to lucas

has ecb communication been helpful in predicting interest rate decisions an evaluation of the early years of the economic and monetary union we examine the usefulness of communication by the european central bank for predicting its policy decisions during the early years of the european economic and monetary union using ordered probit models based on the taylor rule we find that statements on the main refinancing rate and future inflation are significantly related to interest rate decisions at the same time an out of sample evaluation shows that communication based models do not outperform models based on macroeconomic data in predicting decisions both types of models have difficulty in predicting changes in the main refinancing rate

words are not all created equal a new measure of ecb communication we develop a field specific dictionary to measure the stance of the european central bank ecb monetary policy dovish neutral hawkish and the state of the eurozone economy positive neutral negative through the content of ecb press conferences in contrast with traditional textual analysis we propose a novel approach using term weighting and contiguous sequence of words n grams to better capture the subtlety of central bank communication we find that quantifying ecb communication using our field specific weighted lexicon helps to explain future ecb monetary decisions when considering an augmented taylor rule regarding european stock market volatility we find that markets are more less volatile on the day following a conference with a negative positive tone about the euro area economic outlook our indicators significantly outperform a textual classification based on the loughran mcdonald or apel blix grimaldi dictionaries and a media based measure of economic policy uncertainty

changes in uk monetary policy rules and discretion in practice abstract in october 1992 following sterling s departure from the exchange rate mechanism britain adopted a new framework for monetary policy that comprised two components first an explicit target for inflation and second institutional changes designed to give greater influence to the bank of england by increasing the transparency and openness of the process by which interest rates are set this paper analyses those changes from the perspective of the debate on rules versus discretion and argues that an appropriate design of institutional arrangements can provide incentives for central bankers to pursue the first best state contingent monetary policy

are two heads better than one monetary policy by committee two experiments were conducted to test the common hypothesis that groups make decisions more slowly than individuals one of these experiments imitates real life monetary policy decisions in both cases the hypothesis is found wanting groups are not slower than individuals in both experiments we also find that group decisions are on average better than individual decisions this holds regardless of whether the groups make decisions by unanimity or majority rule simple mechanical theories of group decisionmaking that the group follows its average player median player or best player do not explain the results group interactions seem to matter

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

the high frequency response of the eur usd exchange rate to ecb communication we investigate the impact of the european central bank s monetary policy communication during the press conference held after the monthly governing council meeting on the eur usd exchange rate in high frequency based on the method of content analysis we construct communication indicators for the introductory statement and find that communication with respect to future price developments is most relevant in response to statements about increasing risks to price stability the eur appreciates on impact to the contrary communication about economic activity and monetary aggregates does not generate significant exchange rate reactions

communication by central bank committee members different strategies same effectiveness the paper assesses the communication strategies of the federal reserve the bank of england and the european central bank and their effectiveness we find that the effectiveness of communication is not independent from the decision making process the paper shows that the federal reserve has been pursuing a highly individualistic communication strategy amid a collegial approach to decision making while the bank of england is using a collegial communication strategy and highly individualistic decision making the european central bank ecb has chosen a collegial approach both in its communication and in its decision making assessing these strategies we find that predictability of policy decisions and the responsiveness of financial markets to communication are equally good for the federal reserve and the ecb this suggests that there may not be a single best approach to designing a central bank communication strategy

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

dc power flow revisited linear mw only ldquodcrdquo network power flow models are in widespread and even increasing use particularly in congestion constrained market applications many versions of these approximate models are possible when their mw flows are reasonably correct and this is by no means assured they can often offer compelling advantages given their considerable importance in today s electric power industry dc models merit closer scrutiny this paper attempts such a re examination

communication and monetary policy recent trends toward greater central bank independence and the adoption of formal inflation targeting by several countries have served to emphasize the importance of communication policy in this paper we explore some of the economic effects of public information that arise whenever public information serves the dual role of conveying fundamental information as well as serving as a focal point for better coordination more precise public information is a double edged tool while it is very effective in influencing actions through coordination sometimes it can be too effective and coordinate actions away from fundamentals copyright 2002 oxford university press

the euro exchange rate during the european sovereign debt crisis dancing to its own tune abstract this paper studies the determinants of the euro exchange rate volatility during the european sovereign debt crisis allowing a role for macroeconomic fundamentals policy actions and the public debate by policy makers it finds that the euro exchange rate mainly danced to its own tune with a particularly low explanatory power for macroeconomic fundamentals the findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared still there are instances where exchange rate volatility increased in response to news such as on days when several politicians from aaa rated countries went public with negative statements suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions

democracy and foreign education despite the large amount of private and public resources spent on foreign edu cation there is no systematic evidence that foreign educated individuals foster democracy in their home countries using a unique panel dataset on foreign stu dents starting in the 1950s i show that foreign educated individuals promote democracy in their home country but only if the foreign education is acquired in democratic countries the results are robust to several estimation techniques to different definitions of democracy and to the inclusion of a variety of control variables including democracy in trading partners neighboring countries level of income and level and stock of education jel d72 121 015 do foreign educated individuals play a role in fostering democracy in their home countries despite the large amount of resources spent on financing foreign education there is no systematic study on the effects of foreign education on democracy this paper fills this gap using a dataset on foreign students that includes almost all host and sending countries and spans over 50 years numerous policy initiatives and large investment in the united states are based on the notion that foreign educated students promote democracy in their countries of origin through the fulbright program the us government has financed more than 158 000 foreigners studying in the united states 1 the us government not only finances the education of foreign students but also annually issues more than 250 000 nonimmigrant visas for foreign students more than five million individuals have received visas to study in the united states since 1971 2 us efforts to educate foreign students have produced impressive results 46 current and 165 former heads of governments are products of us higher education foreign leaders educated in the united

the validity of the event study approach evidence from the impact of the fed s monetary policy on us and foreign asset prices this paper documents the effects of changes in us monetary policy on asset prices in 51 countries to evaluate the validity of the event study approach we find that the event study estimates contain a significant bias however this bias is fairly small and the ordinary least squares approach tends to outperform in an expected squared error sense the heteroscedasticity based estimator for both small and large sample sizes hence in general the event study methodology should be preferred moreover we show that us monetary policy has been an important determinant of global financial markets

the response of term rates to fed announcements in february 4 1994 the federal reserve began the practice of announcing changes in the targeted level for the federal funds rate immediately after such decisions were made this paper investigates to what extent the policy of the announcement affected a key ingredient in the monetary transmission mechanism the term structure of nominally risk free treasury securities we find that term rates react much more in unison during announcement days than at any other time moreover the practice of circumscribing almost all changes in the federal funds rate target to federal open market committee fomc meeting dates regiments the formation of market expectations in the overnight rate and the price discovery process of term rates thus facilitating the fed s goal of controlling long term rates

expectations and the nonneutrality of lucas abstract this paper was written to kick off the conference celebrating the anniversary of lucas s expectations and the neutrality of money it recalls the state of macroeconomics in the late 1960 s cites some technical and substantive precursors of lucas s idea and explores the legacies of the equilibrium concept monetarism fiscalism and standards proposed in lucas s paper

switching equilibria the present value model for stock prices revisited abstract this paper analyzes the dynamic features displayed by alternative rational expectations equilibria in the context of the present value model for stock prices with feedback in particular it shows that there exists a unique equilibrium implying cointegration and that equilibrium is characterized by either the fundamental or alternatively the backward solution depending on the size of the feedback parameter it is shown analytically that the existence of switching equilibria induces large stock market swings using us data and structural estimation the hypotheses of feedback and switching equilibria are tested the empirical results provide evidence of both switching equilibria and feedback

understanding robert lucas 1967 1981 his influence and influences abstract this paper analyzes robert lucas s contribution to economic theory between 1967 year of his first solo publication and 1981 the year before the emergence of real business cycle approach and it has two parts the first one using citation data from three different sources we try to answer two questions i what are lucas s most influential papers currently ii how has this influence changed through time we show for instance that according to two of those three sources lucas s most influential paper today is not from his business cycle research agenda which gave him his nobel prize in 1995 moreover it is clear the loss of influence of lucas s macroeconomic theory since the early 1980s in the second part by cataloging all the works that lucas had used as bibliographical references in his papers and separating them in two categories positive and negative we try to understand who exerted influence on him we show that the author that lucas most cited in a positive context were john muth milton friedman and edmund phelps the authors more often cited in a negative context were john m keynes and a w phillips we discuss the reasons behind this data

dispersed communication by central bank committees and the predictability of monetary policy decisions the paper asks whether members of central bank decision making committees should communicate with the public in a collegial manner by conveying the consensus or majority view of the committee or in an individualistic way by providing the diversity of views among the committee members it finds that more active as well as more consistent communication by committee members improves the predictability of monetary policy decisions significantly this effect is sizeable as communication dispersion across committee members accounts on average for one third to one half of the market s prediction errors of fomc policy decisions moreover more active and more consistent communication are found to also reduce the degree of uncertainty about the future path of interest rates these findings suggest that a collegial communication which stresses the consensus view on policy inclinations can enhance the effectiveness of central bank communication

argentina s currency board collapse weak policy or bad luck two basic views can be discerned in post mortems of argentina s currency board 1 that weak fiscal policy was fundamentally to blame and 2 that the peso had become too severely overvalued for the peg to survive this paper evaluates the evidence for these rival interpretations the real effective exchange rate index did not indicate massive overvaluation but this index does not capture the effects on the equilibrium rate of the sudden stop in capital flows to emerging markets after 1998 it also understates the amount of adjustment required for argentina to reach the equilibrium rate because neighbour countries dollar exchange rates were held up by argentina s overvaluation as is indicated by their depreciation in 2002 argentina was particularly vulnerable to the sudden stop because of the extreme volatility of its portfolio inflows fiscal policy simulations suggest that even with a substantially improved primary balance from 1994 onwards loss of investor confidence would still have triggered unsustainable debt dynamics once the recession began to bite after 1998 the stagnation of output and prices in argentina created a yawning gap between the interest rate on debt and the rate of growth of nominal gdp had the currency been floated in say 1995 the real devaluation of the peso would still have pushed up the debt gdp ratio but higher output would have left greater scope for addressing this by running a sizeable primary surplus moreover the more gradual depreciation under floating might have allowed the economy to adjust to higher debt service payments without resort to default the imf has criticised itself for not pressing for tighter fiscal policy in the 1990s a more fundamental criticism would be that it was seduced by the bipolar model into complacency about adjustment to real shocks and forgetting the teachings of optimum currency area theory

monetary policy predictability in the euro area an international comparison we evaluate the ability of market participants to anticipate monetary policy decisions in 14 countries first by looking at both the magnitude and volatility of changes in the money market rates we show that the days of policy meetings are special days for financial markets second we find that the predictability of federal reserve fed bank of england and european central bank ecb is fully comparable finally an econometric analysis of the ability of market participants to incorporate in the current short term interest rates the expected policy changes shows that in the euro area and in other countries policy decisions are anticipated well in advance

federal reserve communications and newswire coverage in this article we explore the determinants of newswire coverage of federal reserve fed communications our sample covers all 344 forward looking communications made in the period may 1999 to may 2004 we find first that there is a higher likelihood of newswire coverage for monetary policy reports and speeches by chairman greenspan than for testimony and speeches by other fed members furthermore communications with an explicit monetary policy inclination or tone different from the current interest rate path are particularly likely to be covered however the release of important macroeconomic news reduces the likelihood of newswire coverage second speeches by regional fed presidents are relatively less likely to be reported than speeches by board members nevertheless newswire coverage of fed president speeches is more likely if central bank communication is stale finally our results indicate that ben bernanke played a distinguished role even before his chairmanship

credibility and flexibility with independent monetary policy committees independent monetary policy committees are a simple way of attaining relatively low inflation without completely sacrificing an activist role for monetary policy if central bankers types are unknown then for a wide range of parameters an independent committee achieves higher social welfare than either a zero inflation rule or discretionary policy conducted by an opportunistic central banker a key reason for the committee s superior performance is that committee members are relatively likely to opt for low inflation and building a reputation when shocks are small when large shocks hit the economy the incentive to react outweighs the reputationbuilding benefit

spread the word international spillovers from central bank communication abstract we construct a novel text dataset to measure the sentiment component of communications for 23 central banks over the 2002 2017 period our analysis yields three results first comovement in sentiment across central banks is not reducible to trade or financial flow exposures second sentiment shocks generate cross country spillovers in sentiment policy rates and macroeconomic variables and the fed appears to be a uniquely influential generator of such spillovers even among prominent central banks and third geographic distance is a robust and economically significant determinant of comovement in central bank sentiment while shared language and colonial ties have weaker predictive power

from turmoil to crisis dislocations in the fx swap market before and after the failure of lehman brothers abstract this paper investigates dislocations in the foreign exchange fx swap market between the us dollar and three major european currencies after the failure of lehman brothers in september 2008 deviations from covered interest parity cip were negatively associated with the creditworthiness of us financial institutions as well as that of european institutions consistent with the deepening of a dollar liquidity problem into a global phenomenon us dollar term funding auctions by the ecb snb and boe as well as the us federal reserve commitment to provide unlimited dollar swap lines are found to have ameliorated the fx swap market dislocations

purdah on the rationale for central bank silence around policy meetings 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

open mouth operations abstract this paper explains how central bank statements rather than open market operations can be used to implement monetary policy in the extreme policy instruments can be held constant and yet interest rates will evolve along the path desired by the central bank we show how the recent implementation of monetary policy in new zealand works in this way using announcement data from new zealand we find that open mouth operations lead to large changes in interest rates across all maturities and these changes cannot be explained by open market operations implications are drawn for monetary policy in other jurisdictions

social value of public information comment morris and shin 2002 is actually pro transparency not con the main result of morris and shin 2002 restated in papers by amato morris and shin 2002 and amato and shin 2003 and commented upon by the economist 2004 has been presented and interpreted as an anti transparency result more public information can be bad however some scrutiny of the result shows that it is actually pro transparency except in very special circumstances more public information is good furthermore for a conservative benchmark of equal precision in public and privateinformation social welfare is higher than in as ituation without public information

domestic or u s news what drives canadian financial markets i introduction canada as a small open economy depends to a large extent on global economic developments trade and capital flow linkages to its major trading partners as well as the foreign interest rate level are important for the canadian economy in our sample period about two thirds of total portfolio investments in canada are made by u s investors the trade share with the united states is also quite large 77 in 1998 68 in 2006 in 95 of all currency transactions involving canadian dollars these are converted into u s dollars and vice versa 1 these figures indicate that economic developments in the united states and its monetary policy mp should play an important role particularly in the development of the canadian economy and its financial markets there has even been discussion of creating a monetary union between canada and the united states or unilaterally adopting a u s dollar peg for instance buiter 1999 concludes that economic arguments favor a full formally symmetric monetary union therefore when studying canadian financial markets one needs to consider economic events occurring in the united states gravelle and moessner 2001 state that throughout the 1990s canadian market participants tended to put greater emphasis on u s macroeconomic data releases than on canadian ones thus one should expect u s macroeconomic news and mp to have a significant impact on canadian financial markets in addition it is important to study mp communication in a broad sense and not only target rate changes as market participants but also adjust to news conveyed in speeches and testimony by federal open market committee fomc members as u s financial markets react to informal channels of mp we expect canadian markets will too 2 our sample period 1998 2006 includes several formal and informal changes in canadian mp ever since september 1998 the bank of canada boc has intervened in the foreign exchange market only under exceptional circumstances in september 2000 it introduced fixed announcement dates fads previously target rate changes could effectively occur on any business day 3 with the introduction of fads the boc became more independent from the federal reserve bank fed the boc does not explicitly refer to any prior decisions by the fed in its post meeting statements after may 2000 for instance between april 2002 and september 2004 the boc target rate deviates substantially from the federal funds target rate see figure a1 in the appendix this is the first paper to study the effects of formal and informal communication by the boc as well as by the fed on canadian financial markets using a novel set of data in this paper we address four research questions 1 do u s and canadian central bank communication including target rate changes and macroeconomic news have an impact on canadian financial market returns 2 which type of news u s or canadian is more relevant 3 does the introduction of the fad system change agents sensitivity to canadian news in particular is there a stronger reaction to canadian news in the april 2002 to september 2004 subsample a period during which the course of boc mp was different from that of the fed compared to reactions in other periods this is of particular interest as the boc followed the u s interest rate path closely even after introduction of the fad system 4 does u s and canadian news exert an influence on financial market volatility the remainder of this paper is organized as follows in the next section we summarize previous work in this area and outline the contributions of this paper section iii describes the construction of the news dummies and explains our data set section iv introduces the econometric methodology section v reports our empirical results for bond market returns section vi focuses on stock and foreign exchange market returns

what matters when the impact of ecb communication on financial market expectations this article analyses financial markets reaction to european central bank s ecb communication we apply a novel indicator that quantifies the contents of the ecb s introductory statements and allows disentangling ecb statements on prices the real and the monetary sector we provide evidence that it matters what issue the ecb is speaking about especially the ecb s statements on price developments represent important news to financial markets it also matters when the ecb affects markets communication drives maturities above 4 months