The Study On The Impact Of Central Bank Communication On Financial Market

In recent years, with countries'central Banks gradually enhancing the transparency of monetary policy, central bank communication as a new monetary policy tool, is recognized and frequently used by more and more countries. The practical experience of developed countries shows that the central bank communication has become an effective means of monetary authorities to regulate economy. Since our country began to practice the marketization of interest rate and exchange rate, China's central bank began to constantly deliver information to the public through central bank communication.So, can the central bank communication guide the public to develop rational expectations, change their investment behavior, thus make the financial market change in the direction that authorities expect? And can it effectively reduce the volatility of financial markets? Can central bank communication act as an effective monetary policy tools in financial markets?Based on the above problems, we focus on central bank communications from 2007 to 2015 of China, and then study their impact on financial markets. In this paper, we first summarize the relevant literature regarding measure of central bank communication and its impact on the financial markets. Then we generalize the form, content and target of central bank communication, and then we analyze the transmission mechanism of central bank communication. Moreover, we assign values to central bank communication information according to different classification with text analysis method. Then, this paper use EGARCH model to analyze the impact of different monetary policy trend and different methods of central bank communication on asset prices. Finally, we use event study method to analyze different tendencies of central bank communication effects on asset prices in financial markets.The research results of this paper show that in general, the central bank communication can make the asset prices in financial markets change in the direction as expected, namely central bank communication with a loose tendency will cause a decline in market interest rates, rise in stock yields, and tightening tendency can lead rising market interest rates and falling stock returns. As for asset price fluctuations, the central bank communication can raise the volatility of medium and long-term interest rate market, while in the short-term interest rate market and the stock market it can reduce the volatility, showing significant influence. As for different forms, through the comparison of written and oral central bank communication, oral communication has stronger effects both on controlling level change and volatility in financial markets. At the same time, this paper also found that for Shibor and bond market, central bank communication of loose tendency have relatively significant impact on the change of asset prices; while for the stock market, central bank communication of loose tendency do more.