Abstract: The effective transmission of monetary policy can be hampered by geopolitical uncertainty, at times necessitating central banks to adapt their tools and communication strategy in order to anchor market expectations. The UK 2016 referendum on EU membership is a prominent example of geopolitical uncertainty, manifested as an historic event. Accordingly, this paper examines how the Bank of England (BoE) adjusted their response, including through conventional, unconventional monetary policy measures and communications. We use text-based analysis of Monetary Policy Committee (MPC) summaries and minutes to measure the stance of policy, QE-related news and geopolitical uncertainty. To investigate the impact of central bank communication, we then decompose long-dated yields into a risk-neutral and term premium component and analyse the dynamic response to MPC communications. We show that the Bank’s communication strategy acted to complement the stance of monetary policy, which had responded to the result of the referendum by lowering Bank Rate and expanding QE, and helped lower the term premium that might otherwise have risen in response to this example of geopolitical uncertainty.
Abstract: In response to the 2016 referendum on EU Membership and the ensuing uncertainty as to the eventual consequences of Brexit, the Bank of England (BoE) adopted various methods of influencing market rates, including conventional, unconventional monetary policy measures and communications on forward guidance. To investigate the effectivenes e first decompose long-dated yields into a risk neutral and term premium component. Text-based analysis of Monetary Policy Committee minutes is then used communication strategy acted to complement the stance of monetary policy, which had responded by lowering Bank rate and expanding QE, and acted to lower the term premium that might otherwise have risen in response to Brexit uncertainty.
Abstract: Since the nancial crisis, central banks have stressed the role of trust and communication in connection with their objectives and strategies for aligning the public's inflation expectations with their own and, consequently, improving the e ectiveness of monetary policy. Assessing how much the general public knows about and trust in central banks and how these factors influence inflation expectations is thus important. We shed light on these issues by relying on a representative survey conducted among individuals living in Germany. Although most respondents assume that they have a good or very good knowledge of the ECB and the Bundesbank, only about 20 percent cite "price stability" when asked directly about the two central banks' objectives. Knowledge of the ECB's and the Bundesbank's goals act as significant drivers of trust in these institutions, however. And greater trust in the ECB and Bundesbank, in turn, lowers individuals' inflation expectations. More specifically, having greater trust increases the probability of expecting unchanged prices and decreases the likelihood of expecting either slightly or sharply rising prices over the medium term. Interestingly, awareness of price stability as the primary objective of the ECB's monetary policy does not seem to affect inflation expectations directly once we control for trust, individuals' socio-demographic characteristics and their interest in economic topics. Our study indicates that central banks can influence households' inflation expectations through building trust and educating the public about their targets.