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    Exploring central bank communication as a policy tool: an analysis of the Bank of England

    Adesina, Adetola (2019) Exploring central bank communication as a policy tool: an analysis of the Bank of England. Doctoral thesis, Birkbeck, University of London.

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    Abstract

    We explore policy communication documents from the Bank of England as a means of understanding how communication can drive policy. This dissertation contributes to the literature in three ways. First, using textual analysis of the Bank’s periodical communication, we assess if the complexity and tone of these communications are influenced by the macroeconomic conditions during which the communication is made: we focus on macroeconomic conditions that the Bank closely monitors and, in some cases is assessed by, such as inflationary pressures and international competitiveness of the pound. Secondly, using a FAVAR model, we assess if communication shocks are transmitted to key macroeconomic variables. Our intuition is that if communication is to aid monetary policy, then understanding the direction of shock transmission from communication to the macro environment becomes important. Finally, we explore volatility transmission from the Bank’s communication to the stock-market, and currency and bond markets, based on the complexity and tone used in communication. We find that inflationary pressure impacts the complexity and tone of the Bank’s communication; exchange rate pressures also affect the complexity of communications. Specifically, under ‘unfavourable macroeconomic conditions’ (rising inflation accompanied by widening inflation gaps and falling pound values), the Bank’s communication displays greater complexity, reduced optimism and increased uncertainty. Our findings on the transmission of shocks from communication to macroeconomic variables are mixed; however we find that optimism shocks impact macroeconomic variables in a similar way to a contractionary monetary policy. We also show using Factor Error Variance Decomposition (FEVD) analysis that complexity and optimism shocks contribute more to explaining some variations in financial markets in the immediate term than the policy rate does. Our results regarding the role of communication in market volatility also suggest that rising optimism reduces volatility in the stock market and currency markets but complexity has little impact on volatility. Overall, our findings have significant policy implications for the Bank of England as it seeks to understand the role of communication in policy making.

    Metadata

    Item Type: Thesis
    Copyright Holders: The copyright of this thesis rests with the author, who asserts his/her right to be known as such according to the Copyright Designs and Patents Act 1988. No dealing with the thesis contrary to the copyright or moral rights of the author is permitted.
    Depositing User: Acquisitions And Metadata
    Date Deposited: 12 Aug 2019 11:24
    Last Modified: 01 Mar 2021 11:56
    URI: https://eprints.bbk.ac.uk/id/eprint/40431

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