The 'Words' of Central Bank Chiefs, More Important Than Rate Decisions

Greater Impact on Financial Markets

A research study has found that remarks made by central bank chiefs have a greater influence on financial markets than official benchmark rate decisions.

Eric Swanson, Professor of Economics at the University of California, Irvine, presented a paper titled 'The Speech of the Fed Chair: More Important Than FOMC Announcements' at the World Congress of Economists held at COEX in Seoul on the 21st. Professor Swanson compared the impacts on financial markets of various forms of communication—such as Fed Chair press conferences and speeches—and official announcements by the FOMC, covering the period from 1988 to 2023. The analysis showed that speeches by the Fed Chair moved the S&P 500 Index by 1.72 percentage points, a larger shift than that caused by FOMC statements (1.343 percentage points).

Aiyue Deng, Professor at Beijing University of Posts and Telecommunications in China, also analyzed in her paper, 'How Does the Fed Chair Affect Financial Markets?', that each additional dovish remark made by the Fed Chair led to a 5% increase in S&P 500-tracking ETFs, with a 10-day lag.

In the study 'Measuring Monetary Policy Surprises Using Text Mining,' co-authored by Ki-Young Park, Professor of Economics at Yonsei University, and Young-Jun Lee, Professor of Artificial Intelligence at Jeju Halla University, it was found that the tone of communications from the Bank of Korea before policy meetings and the governor's press conferences after meetings significantly affect government bond yields as reflected in news coverage.

Jin-Kyu Kang, josep@hankyung.com