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

Author/Editor:

Ales Bulir ; Martin Cihak ; David-Jan Jansen

Publication Date:

September 24, 2014

Electronic Access:

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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.

Series:

Working Paper No. 14/175

Subject:

English

Publication Date:

September 24, 2014

ISBN/ISSN:

9781498392914/1018-5941

Stock No:

WPIEA2014175

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

29

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