Central Bank Communication,Interest Rate Transmission And The Effectiveness Of Monetary Policy

Central bank communication refers to the process by which the central bank communicates relevant information about its monetary policy and financial policy to the public orally or in writing.After the financial crisis broke out in the United States in 2008,the international financial system and the global real economy suffered a huge impact.The nominal policy interest rates of developed countries even exceeded the zero interest rate limit.The central bank was forced to implement unconventional monetary policy tools such as forward-looking guidance and window guidance.The purpose is to guide the public's expectations and restore economic growth.In the context of the global financial crisis,the central bank's role in guiding public expectations,enhancing monetary policy effectiveness and forward-looking is more significant.The central bank's communication methods are more diverse,more content-rich,and more frequent.The central bank's communication has been highly valued by the central banks of developed countries,and the People's Bank of China has gradually attached importance to the important role of central bank communication in the monetary policy system.Under the new normal,China's economy faces many reforms and structural adjustments.This requires monetary policy to play its full role,thus creating a sound and stable economic environment for the smooth advancement of supply-side structural reforms.Affected by factors such as financial innovation,the effectiveness of China's current quantitative monetary policy has fallen sharply,and price-based monetary policy has not yet been fully established,which has weakened the ability of traditional monetary policy tools to stabilize prices and output.If central bank communication can effectively improve the effectiveness of monetary policy,it will be great significance to maintain macroeconomic stability and enhance monetary policy control capabilities.This paper systematically sorts out the literature on central bank communication,transmission path and monetary policy effectiveness.The central bank communication and monetary policy effectiveness based on conduction path are the focus of this paper.First,this paper discusses in detail the contents,channels,objectives,and transmission mechanisms of central bank communication,analyzes the current situation of central bank communication,and conducts statistics on central bank communication from both verbal communication and written communication.Second,the central bank information impact is introduced in the New Keynes DSGE model,and the Bayesian estimation method is used to estimate the model to study the role of central bank communication in stabilizing prices and output.Thirdly,based on the internal mechanism of central bank communication affecting the transmission path of monetary policy,the EGARCH model is used to empirically analyze the impact of central bank communication on different term rates.The VAR model is used to empirically test the impact of central bank communication on money supply and credit channels.Fourth,the SVAR model is used to empirically test the impact of central bank communication on the ultimate goal of monetary policy.Finally,based on theoretical research and empirical results,it provides corresponding countermeasures for the effectiveness of China's central bank communication to improve monetary policy.The main conclusions of this paper are as follows:First,the optimal news period for the central bank's communication information impact is selected one phase ahead;the central bank's communication information shock can reduce the output and price volatility by 53.66%and 67.78%,respectively,and can promote the economy to return faster.At the same time,the welfare loss analysis results also show that under the benchmark model,central bank communication can reduce output variance,inflation variance and social welfare losses by 36.00%,35.29%and 35.71%,respectively,which is conducive to improve our currency policy effectiveness.Second,from the EGARCH model mean value equation analysis,the impact of loose communication signals on market expectations reduces interest rates,and the impact of tight communication signals on market expectations prompts interest rates to rise;from the analysis of variance equations,in addition to the 1-year Shibor interest rate,the central bank communicates the impact of interest rates is negative and significant,indicating that increasing central bank communication can reduce interest rate volatility.Third,according to the VAR model impulse response function,after a given central bank communicates with a positive standard deviation,the money supply and RMB loan volume have a positive impact effect in the current period,and the impact of verbal communication shock is greater than written communication;The analysis of the results of variance decomposition,the contribution of central bank communication is relatively small;Fourth,central bank communication has a certain impact on the effectiveness of monetary policy,in the long-term loose central bank communication strategy can effectively promote economic growth while maintaining inflation the rate is moderately rising;central bank communication can influence inflation expectations through expected channels in the long term,so that inflation expectations will change in the direction of the monetary authorities.The main innovations of this paper are as follows:First,the EGARCH model is used to empirically study the influence of central bank communication on various market interest rates of different durations from the mean equation and the variance equation,and evaluate the effectiveness of monetary policy.Second,in the New Keynesian dynamic stochastic general equilibrium model,the central bank communicates information shocks,discusses the impact of monetary policy shocks including central bank communication and monetary policy shocks that do not include central bank communication on output and prices,and verifies whether central bank communication can be effective.Reduce the volatility of prices and output,and further analyze the quantitative impact of central bank communication information shocks on social welfare.Third,the SVAR model is constructed by selecting variables such as inflation,actual output,traditional monetary policy tools,and central bank communication.Through the impulse response and variance decomposition,the paper analyzes the communication behavior of the central bank and the final conclusion of China's monetary policy.Fourth,on the basis of theoretical and empirical research,it puts forward the policy recommendations for the improvement of China's central bank's monetary policy,mainly including strengthening the open and transparent mechanism of central bank communication;establishing a clear central bank communication strategy;improving the level and quality of central bank communication;standardizing the central bank's communication and operation system;improving the monetary policy framework,etc.