The effect of central bank communication on sovereign bond yields: The case of Hungary

In this article we investigate how the public communication of the Hungarian Central Bank’s Monetary Council (MC) affects Hungarian sovereign bond yields. This research ties into the advances made in the financial and political economy literature which rely on extensive textual data and quantitative text analysis tools. While prior research demonstrated that forward guidance, in the form of council meeting minutes or press releases can be used as predictors of rate decisions, we are interested in whether they are able to directly influence asset returns as well. In order to capture the effect of central bank communication, we measure the latent hawkish or dovish sentiment of MC press releases from 2005 to 2019 by applying a sentiment dictionary, a staple in the text mining toolkit. Our results show that central bank forward guidance has an intra-year effect on bond yields. However, the hawkish or dovish sentiment of press releases has no impact on maturities of one year or longer where the policy rate proves to be the most important explanatory variable. Our research also contributes to the literature by applying a specialized dictionary to monetary policy as well as broadening the discussion by analyzing a case from the non-eurozone Central-Eastern region of the European Union.

Download Full-text

The Impact of the Introduction of Uniform European Collective Action Clauses on European Government Bonds as a Regulatory Result of the European Sovereign Debt Crisis

Journal of Risk and Financial Management ◽

10.3390/jrfm14010001 ◽

2020 ◽

Vol 14 (1) ◽

pp. 1

Author(s):

Nicoletta Layher ◽

Eyden Samunderu

Keyword(s):

European Union ◽

Sovereign Debt ◽

Debt Crisis ◽

Sovereign Debt Crisis ◽

The European Union ◽

Bond Yields ◽

Member States ◽

Sovereign Bond ◽

European Sovereign Debt Crisis ◽

Collective Action Clauses

This paper conducts an empirical study on the inclusion of uniform European Collective Action Clauses (CACs) in sovereign bond contracts issued from member states of the European Union, introduced as a regulatory result of the European sovereign debt crisis. The study focuses on the reaction of sovereign bond yields from European Union member states with the inclusion of the new regulation in the European Union. A two-stage least squares regression analysis is adopted in order to determine the extent of impact effects of CACs on member states sovereign bond yields. Evidence is found that CACs in the European Union are priced on financial markets and that sovereign bond yields do respond to the inclusion of uniform CACs in the European Union.

Download Full-text

Writing Clearly: The ECB’s Monetary Policy Communication

German Economic Review ◽

10.1111/j.1468-0475.2011.00562.x ◽

2013 ◽

Vol 14 (1) ◽

pp. 50-72 ◽

Cited By ~ 13

Author(s):

Aleš Bulíř ◽

Martin Čihák ◽

Kateřina Š Šmídkova

Keyword(s):

Risk Assessment ◽

Central Bank ◽

European Central Bank ◽

Central Banks ◽

Press Releases ◽

Central Bank Communication ◽

Additional Information ◽

European Central ◽

Policy Communication ◽

Better Than

Abstract The article presents a novel methodology for measuring the clarity of central bank communication using content analysis, illustrating the methodology with the case of the European Central Bank (ECB). The analysis identifies the ECB’s written communication as clear in about 85-95% of instances, which is comparable with, or better than, similar results available for other central banks. We also find that the additional information on risk to inflation and especially projection risk assessment contained in the ECB’s Monthly Bulletins helps to improve communication clarity compared to ECB’s press releases. In contrast, the bulletin’s communication on monetary developments has a negative, albeit small, impact on clarity.

Download Full-text

Flow Effects of Central Bank Asset Purchases on Euro Area Sovereign Bond Yields: Evidence from a Natural Experiment

SSRN Electronic Journal ◽

10.2139/ssrn.2968922 ◽

2017 ◽

Author(s):

Roberto A. De Santis ◽

Federic Holm-Hadulla

Keyword(s):

Central Bank ◽

Euro Area ◽

Natural Experiment ◽

Bond Yields ◽

Sovereign Bond ◽

Asset Purchases ◽

Flow Effects

Download Full-text

Central Bank Communication and Forward Guidance Shocks

SSRN Electronic Journal ◽

10.2139/ssrn.3825193 ◽

2021 ◽

Author(s):

Nataliia Ostapenko

Keyword(s):

Central Bank ◽

Central Bank Communication ◽

Forward Guidance

Download Full-text

Central Bank Communication: Forward Guidance

Modern Economics ◽

10.31521/modecon.v25(2021)-25 ◽

2021 ◽

Vol 25 (1) ◽

pp. 160-165

Author(s):

Vladyslav Sholopak ◽

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Central Bank ◽

The United States ◽

Central Banks ◽

The European Union ◽

Information Tools ◽

Forward Guidance ◽

Wide Range ◽

Economic Forecasts

Abstract. Introduction. Incomprehension and misinterpretation of central bank actions by the markets lead to uncertainty. As a result, the volatility of inflation, prices, and assets increases. The low-interest-rate in today’s macroeconomic environment is a common thing. In such circumstances, the economy is so difficult to adapt to internal and external shocks, so inefficiencies caused by incorrect or untimely statements by the regulator can exacerbate the problem and provoke unjustified risks. These new conditions have led to changes in the way information is covered and create a new communication approach. Purpose. Thus, the article aims to systematize the main patterns of forwarding guidance mechanism as a communication tool in monetary policy. Its use in such developed economies as Japan, the United Kingdom, the United States, and the European Union. Identification of major trends in the use of forwarding guidance form during the crises of 2008 and 2020. Determination of why targets are 2% inflation with the description of monetary and communication tools, research of information coverage approaches. Results. The central bank statements affect to decisions of various market participants and can be divided into economic forecasts and forward guidance. According to the forwarding guidance classification, the analysis was made of 2020 statements and compared with the 2008 statements, for each of the studied countries. The finding shows that there has been a shift from economic forecasts to forward guidance. A model consisting of four elements has been identified for the four central banks: target, monetary instruments, statement approach, and information tools. Conclusions. In general, new types such as state-contingent and calendar-based statements began to be used during the last crisis. The most common monetary instrument that appears in statements being the interest rate. The common goals for all central banks are to focus on price stability, which is expressed in inflation of 2%. This target must be long-term and in numerical terms to effectively management inflation expectations and bring down volatility. All banks strive for simplicity and clarity in their statements, and they use a wide range of information tools. Keywords: central bank communicatioт; forward guidance; non-traditional monetary policy instrument.

Download Full-text