A new Working Paper by Özer Karagedikli (The SEACEN Centre) and Sui-Jade Ho (Bank Negara Malaysia), titled
Effects of Monetary Policy Communication in Emerging Market Economies: Evidence from Malaysia
is now available for download.
: By conducting a high-frequency event study similar to Gürkaynak et al. (2005), we find that two factors are needed to adequately capture the effects of monetary policy announcements for a non-inflation targeting emerging market economy, Malaysia. These factors are the surprise changes in the policy rate (Overnight Policy Rate, OPR) and the information about the future path of monetary policy. We find that the path factor has a strong influence on long-term government bond yields, corporate bond yields and spreads. Our findings are indicative of the view that monetary policy communication is mostly about revealing information pertaining to the central bank’s assessment of the economic outlook, as opposed to an unconditional binding commitment to follow a specific policy path. Download the full paper here