Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?

By Ales Bulir, Martin Cihak, David-Jan Jansen

September 24, 2014

Preview Citation

Format: Chicago

Ales Bulir, Martin Cihak, and David-Jan Jansen. Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?, (USA: International Monetary Fund, 2014) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We study whether clarity of central bank inflation reports affects return volatility in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level, a standard readability measure. We find some evidence, mainly for the euro area, of a negative relationship between clarity and market volatility prior to and during the early stage of the global financial crisis. As the crisis unfolded, there is no longer robust evidence of a negative connection. We conclude that reducing noise using clear reports is possible but not without challenges, especially in times of crisis.

Subject: Banking, Communications in revenue administration, Financial crises, Financial institutions, Global financial crisis of 2008-2009, Inflation, Prices, Revenue administration, Stocks

Keywords: BoE web site, Central bank communication, Clarity, Communications in revenue administration, Estimation result, Financial market return, Financial market volatility, Financial markets, FK grade level, Global, Global financial crisis of 2008-2009, Inflation, Inflation report, Inflation reports, Market reaction, Market uncertainty, Point estimate, Stock index, Stocks, Volatile inflation, Volatility, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/175
Stock No:

WPIEA2014175
ISBN:

9781498392914
ISSN:

1018-5941

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