Communication of monetary policy took back seat in financial crisis, researchers find

Communication of non-monetary policy information dominated central bank communications during the financial crisis and its immediate aftermath, two researchers at the Bank for International Settlements find.

Monetary policy communication regained importance after 2013, the researchers say.

In Non-monetary news in central bank communication, Anna Cieslak and Andreas Schrimpf compare government bond yields and equity returns against central bank news and communication channels.

They study the communication from the Bank of England, Bank of Japan, European Central Bank and the Federal Reserve from the late 1990s to 2017.

Over the period, they find news about economic activity and news that affects investors’ risk valuations dominated more than half of the central banks’ communication events.

“Press conferences by the ECB transmit non-monetary content in about 65% of the cases, with growth and risk premium news carrying the largest weight in terms of economic significance,” they say.

The authors find many unconventional policy announcements convey a significant amount of non-monetary information. However, forward guidance does works as a powerful monetary policy shock, they say.