The Czech National Bank Communication and the Yield Curve

• Thesis title in Czech: Komunikace České národní banky a výnosová křivka
• Thesis title in English: The Czech National Bank Communication and the Yield Curve
• Key words: Česká národní banka, signalizování pomocí monetární politiky, komunikace centrální banky, časová struktura úrokových měr, GARCH analýza
• English key words: Czech National Bank, monetary policy signaling, central bank communication, the term structure of interest rates, GARCH analysis
• Academic year of topic announcement: 2011/2012
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: prof. Roman Horváth, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 30.04.2012
• Date of assignment: 30.04.2012
• Date and time of defence: 26.06.2013 00:00
• Venue of defence: IES
• Date of electronic submission: 01.05.2013
• Date of proceeded defence: 26.06.2013
• Opponents: Ing. Aleš Maršál, Ph.D.

References

Andersson, M., Dillén, H. & Sellin, P., 2001. Monetary Policy Signaling and Movements in the Swedish Term Structure of Interest Rates, Sveriges Riksbank (Central Bank of Sweden). Available at: http://ideas.repec.org/p/hhs/rbnkwp/0132.html.

Blinder, A.S. et al., 2008. Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence, National Bureau of Economic Research. Available at: http://www.nber.org/papers/w13932 [Accessed April 26, 2012].

Bomfim, A.N., 2003. Monetary Policy and the Yield Curve.

Buttiglione, L., Giovane, P.D. & Tristani, O., 1997. Monetary Policy Actions and the Term Structure of Interest Rates: A Cross-Country Analysis, Banca d’Italia. Servizio studi.

Demiralp, S., Kara, H. & Özlü, P., 2011. Monetary policy communication under inflation targeting: Do words speak louder than actions?, TUSIAD-Koc University Economic Research Forum. Available at: http://ideas.repec.org/p/koc/wpaper/1128.html [Accessed April 22, 2012].

Égert, B. & Kočenda, E., 2012. The impact of macro news and central bank communication on emerging European forex markets, University of Paris West - Nanterre la Défense, EconomiX. Available at: http://ideas.repec.org/p/drm/wpaper/2012-20.html.

Hamilton, J.D. & Jorda, O., 2000. A Model for the Federal Funds Rate Target, National Bureau of Economic Research, Inc. Available at: http://ideas.repec.org/p/nbr/nberwo/7847.html [Accessed April 26, 2012].

Rosa, C., 2011. The high-frequency response of exchange rates to monetary policy actions and statements. Journal of Banking & Finance, 35(2), pp.478–489.

Preliminary scope of work

Ve své práci bych chtěl zjistit, jak různé signály monetární politiky (změny repo sazeb, inflační zprávy, projevy, minutes) ovlivňují úrokové sazby. Dále budu zkoumat efektivnost komunikace monetární politiky ČNB. Chtěl bych najít ty politiky, které nejvíce ovlivňují úrokové sazby nejvíce. V neposlední řadě bych chtěl zjistit, jakou roli, pokud vůbec nějakou, hrají výroky ČNB v predikování dalších politických tahů.

Chtěl bych odpovědět na následující otázky:
1. Ovlivňuje komunikace ČNB úrokové sazby?
2. Jaké zprávy jsou nejvíce relevantní?
3. Jaké efekty mají různé signály na vývoj úrokových sazeb?
4. Jak velké jsou dopady na krátkodobé a dlouhodobé sazby?
5. Jak je důležité zvěřejňování relevantních ekonomických zpráv?

Budu používat the Autoregressive Conditional Hazard Model (ACH model) vytvořený Hamiltonem a Jordou (2002), protože politiky se mění nepravidělně v čase a právě proto jsou lidé nejistí, jak se budou politiky vyvíjet v budoucnu, znají-li pouze informace dostupné dnes.
Jak Anderson et al. (2004) navrhli, neočekávané změny ve výnosové křivce jsou určeny změnami v očekávání budoucích krátkodobých úrokových sazeb a neočekávanými změnami v časové prémii. Pokusím se implementovat i jejich model.

Preliminary scope of work in English

I would like to investigate how the Czech National Bank’s (CNB) various monetary policy signals such as repo rate changes, inflation reports, speeches by and minutes from monetary policy meetings affect the term structure of interest rates.

This thesis would also assess the effectiveness of monetary policy communication of the CNB. I would like to come to the conclusion of which of the previously mentioned monetary policy signals do affect the yield curve and in what sense. Moreover, I would like to find out what is the role, if any, of statements in predicting the next policy move.

I would like to answer the following questions:
1. Does CNB communication have any effect on the term structure of interest rates?
2. Which types of news are more relevant?
3. What are the effects from various signalling channels on the structure of interest rates?
4. How large are the impacts on short-term interest rates and long-term ones?
5. How important is it to control for publication of relevant economic news?

I would like to use the Autoregressive Conditional Hazard Model (ACH model) derived by Hamilton and Jorda (2002) because the policy rate is changed irregularly in time and we are uncertain about when the policy rate will be changed next, given information available today.
As Anderson et al. (2004) suggest, the unexpected movements in the term structure are driven by changes in expectation of future short-term interest rates and unexpected changes in the term premia. We will use their model, too.