Deciphering Delphic Guidance: The Bank of England and Brexit

By Jagjit Chadha, Corrado Macchiarelli, Satyam Goel, Arno Hantzsche, Sathya Mellina

July 19, 2024

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Format: Chicago

Jagjit Chadha, Corrado Macchiarelli, Satyam Goel, Arno Hantzsche, and Sathya Mellina. Deciphering Delphic Guidance: The Bank of England and Brexit, (USA: International Monetary Fund, 2024) accessed December 3, 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

In response to the 2016 referendum on EU Membership and the ensuing uncertainty as to the eventual consequences of Brexit, the Bank of England (BoE) adopted various methods of influencing market rates, including conventional, unconventional monetary policy measures and communications on forward guidance. To investigate the effectiveness of BoE’s communication, we first decompose long-dated yields into a risk neutral and term premium component. Text-based analysis of Monetary Policy Committee minutes is then used to measure the stance of policy, attitudes to QE and Brexit. We show that the Bank’s communication strategy acted to complement the stance of monetary policy, which had responded by lowering Bank rate and expanding QE, and acted to lower the term premium that might otherwise have risen in response to Brexit uncertainty.

Subject: Central bank policy rate, Financial institutions, Financial services, Monetary policy, Sovereign bonds, Unconventional monetary policies, Yield curve

Keywords: Bank of England MPC communication, BoE action, BoE strategy, BoE's monetary policy, Brexit, Brexit referendum, Central bank communication, Central bank policy rate, Global, Monetary policy, Risk premium, Sovereign bonds, Text mining, UK referendum, Unconventional monetary policies, Yield curve

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/160
Stock No:

WPIEA2024160
ISBN:

9798400284649
ISSN:

1018-5941

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