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Deciphering Delphic Guidance: The Bank of England and Brexit

Author

Listed:
  • Jagjit Chadha
  • Corrado Macchiarelli
  • Satyam Goel
  • Arno Hantzsche
  • Sathya Mellina

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 effectiveness of BoE’s communication, we first decompose long-dated yields into a risk neutral and term premium component. Text-based analysis of Monetary Policy Committee minutes is then used to measure the stance of policy, attitudes to QE and Brexit. We show that the Bank’s 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.

Suggested Citation

  • Jagjit Chadha & Corrado Macchiarelli & Satyam Goel & Arno Hantzsche & Sathya Mellina, 2024. "Deciphering Delphic Guidance: The Bank of England and Brexit," IMF Working Papers 2024/160, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/160
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