Study On The Effectiveness Of Monetary Policy Instruments Of Central Bank Communication

With the development of monetary policy theory and practice,the operating style of monetary policy in China is gradually changing from "mystery" to "transparency",the main performance is that the People’s Bank of China is strengthening communication constantly with the public and the financial markets.Monetary policy is an art of managing expectations,communication has become an effective tool of managing expectations.Central bank guides the public and financial markets to form a reasonable expectations by effective communication,and improves the effectiveness of monetary policy.Compared with the relatively perfect theory of central bank communication in the developed countries,the research about the effectiveness of central bank communication as a monetary policy tool in China is not mature enough.First,the definition of central bank communication is not clear.Second,how to quantify and measure central bank communication is a technical problems,there is no relatively complete,clear and open results.Third,most of the references in China focused on discussing the effectiveness of monetary policy instruments of central bank communication from the perspective of financial asset price,other empirical study has not been found.Therefore,the validity of central bank communication as a monetary policy tool is still need further verification.In view of the above shortcoming,this paper mainly discuss the following issue.First,central bank communication can be defined as the process in which the central bank discloses the monetary policy information including monetary policy objectives,strategies,future macroeconomic outlook and monetary policy intention to the public by effective measures and seeks the information digested by the target groups.Second,this paper generates central bank communication index by the phrase extraction method and makes our algorithm scientific and replicable based on China Monetary Policy Report.Third,to verify the effectiveness of central bank communication as a monetary policy tool in an empirical manner,we study the impact of central bank communication on China interbank offered rate and stock market rate of return with the method of VAR.The empirical study shows that:central bank communication become effective immediately on the different China interbank offered rate.It can reduce the volatility of China interbank offered rate in a short time.The same as the traditional monetary policy tools,central bank communication has a certain effect on the stock market,it can benefit stock price stability in a short time.Therefore,central bank communication has the effectiveness of monetary policy tool.Fourth,to further verify the validity of central bank communication as a monetary policy tool,this paper explores the effect of central bank communication on bank’ risk taking based on the bank risk-taking channel with the method of dynamic panel model.The empirical results of our study indicate that,central bank communication has a significant positive impact on the bank’ risk taking,central bank communication is not risk neutral from a perspective of financial stability.So,central bank communication can be the new monetary policy instrument and must pay attention to financial stability,which provides a new evidence for this academic field.Finally,in order to enable central bank communication to be put into good use and enhance the effectiveness of monetary policy,this paper brings forward the following policy proposals.First,improve the effectiveness of financial markets and accelerate the process of marketization.Second,enhance credibility and accuracy of the communicating information of central bank and perfect central bank communication mechanism.Third,cultivate market players’ financial litercay and improve the level of knowledge of central bank’s talents.Fourth,the Peoples’ Bank of China could consider putting forward central bank communication into its own monetary policy toolkit and strengthen coordination and cooperation with macro-prudential management.