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Purdah—On the Rationale for Central Bank Silence around Policy Meetings

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  • MICHAEL EHRMANN
  • MARCEL FRATZSCHER

Abstract

Many central banks share the practice of purdah, a guideline of abstaining from communication around policy meetings. Although seemingly contradicting the virtue of transparency by withholding information precisely when it is sought after intensely, it has been justified on grounds that such communication may create excessive market volatility. This paper assesses the purdah for the Federal Reserve and confirms that financial markets are substantially more sensitive to central bank communication around policy meetings. Short‐term interest rates react three to four times more strongly in the purdah before Federal Open Market Committee meetings than otherwise, and volatility increases (compared to a reduction otherwise).

Suggested Citation

  • Michael Ehrmann & Marcel Fratzscher, 2009. "Purdah—On the Rationale for Central Bank Silence around Policy Meetings," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2‐3), pages 517-528, March.
    • Handle: RePEc:wly:jmoncb:v:41:y:2009:i:2-3:p:517-528
    DOI: 10.1111/j.1538-4616.2009.00219.x
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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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