Abstract: Using a simple theoretical macroeconomic model, we find that central bank communication can reduce the volatility of stock price, implying significant benefits for financial stability. Based on the monthly data during the period of 2003-2012 and structural VAR model, we study the reaction of stock market to central bank communication in order to judge whether central bank communication can benefit financial assert stability. The result shows that central bank communication on the financial markets has a certain effect, but the effect is not obvious. The oral communication is more effective than written communication. Actual intervention variables have limited impact on the financial markets. In order to make central bank communication play a greater role in the operation of monetary policy, this paper suggests strengthening the communication behavior of the central bank by improving the accuracy of the communicating information of the central bank, the transparency of the monetary policy decision-making and the financial literacy of the public.
Keywords: Central Bank Communication, Financial Asset Prices, Stock Market, SVAR
source:Finance & Trade Economics ,No8,2013