Central Bank Communication and Monetary Policy Surprises in Chile

July 6, 2018

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Format: Chicago

Andrea Pescatori. Central Bank Communication and Monetary Policy Surprises in Chile, (USA: International Monetary Fund, 2018) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper assesses the quality of the CBC’s communication policy by looking at the predictability and effectiveness of monetary policy communications by the Central Bank of Chile (CBC). To do so, we construct indeces of monetary policy surprises for the three major communication channels of the CBC: the release of policy meetings’ statements, minutes, and monetary policy reports (IPoM). We assess monetary policy predictability and efficacy by looking at the size and time-evolution of monetary policy surprises associated with meeting statements and the impact of the above communication channels on asset markets. We find that, in general, the CBC’s has been effective in its forward guidance through its statements and IPoM. Policy actions are quite predictable, especially post the global financia crisis. The response of equity prices and the exchange rate to monetary policy surprises have the right sign but are not robust. We also find an asymmetric response of equity prices to minutes suggesting that market participants extract information on the status of the economy especially when minutes have a loosening effect. Finally, to look at the macroeconomic impact we find that a 100 bps monetary policy tightening shock implies a decline in economic activity (IMACEC) of about 2 pp. after one year, while the response of inflation is more muted.

Subject: Central bank policy rate, Communications in revenue administration, Financial markets, Financial services, Inflation, Prices, Revenue administration, Stock markets, Yield curve

Keywords: Central bank communication, Central bank policy rate, Central bank predictability, Chile, Communications in revenue administration, Global, Inflation, Inflation expectation, Inflation forecast dispersion, Monetary policy, Monetary policy decision, Monetary policy meeting, Monetary policy report, Monetary policy shock, Monetary policy shocks, Monetary policy surprise, Proxy VAR, Rate decision, Stock markets, Swap rate, WP, Yield curve

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/156
Stock No:

WPIEA2018156
ISBN:

9781484363102
ISSN:

1018-5941

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