The Long-run Information Effect of Central Bank Communication

Download or read book The Long-run Information Effect of Central Bank Communication written by Stephen Hansen and published by . This book was released on 2019 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why do long-run interest rates respond to central bank communication? Whereas existing explanations imply a common set of signals drives short and long-run yields, we show that news on economic uncertainty can have increasingly large effects along the yield curve. To evaluate this channel, we use the publication of the Bank of England's Inflation Report, from which we measure a set of high-dimensional signals. The signals that drive long-run interest rates do not affect short-run rates and operate primarily through the term premium. This suggests communication plays an important role in shaping perceptions of long-run uncertainty.