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Do central bank words matter in emerging markets? Evidence from Mexico

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  • Solís, Pavel

Abstract

This paper analyzes the price and quantity effects of monetary policy statements in an emerging market economy. Surprises in monetary policy are identified using intraday data on asset prices around monetary policy announcements in Mexico. I find that asset prices and the portfolio flows of domestic and foreign investors respond strongly and persistently to both news about the policy rate and guidance about its future path communicated via statements. The ability to manage expectations about future policy via statements is thus not exclusive to central banks in advanced economies and does not require the zero lower bound to be binding.

Suggested Citation

  • Solís, Pavel, 2023. "Do central bank words matter in emerging markets? Evidence from Mexico," Journal of Macroeconomics, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:jmacro:v:78:y:2023:i:c:s0164070423000708
    DOI: 10.1016/j.jmacro.2023.103570
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy surprises; Exchange rate; Yield curve; Portfolio flows; Emerging markets; High-frequency data;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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