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This paper explores whether there are systematic patterns as to when members of the decision-making committees of the Federal Reserve, the Bank of England and the European Central Bank communicate with the public, and under what circumstances such communication has the ability to move financial markets. The findings suggest that communication is generally seen as a tool to prepare markets for upcoming decisions, as it becomes more intense before committee meetings, and particularly so prior to interest rate changes. At the same time, markets react more strongly to communication prior to policy changes. Other instances where communication becomes more intense, or where financial markets become more responsive are also identified; even though these are more specific to the individual central banks, they are consistent with differences in the central banks’ monetary policy strategies and communication policies.

Along with, and partially due to the recent trend towards central bank independence around the globe, central banks have become remarkably more transparent in the last decades. One trigger for increased transparency has likely been the requirement for greater accountability of independent central banks (Issing, 1999). At the same time, however, it has been increasingly understood that transparency can enhance the effectiveness of policy (Blinder, 1998 and Woodford, 2003). Accordingly, central banks put a much larger weight on their communication with the public nowadays than they used to some years ago. This paper adds to a young, but rapidly growing literature on central bank communication by focusing on the timing of such communication. The paper does so from two perspectives. First, it asks the question whether the timing of communication of central banks shows some systematic patterns, in the sense that we look for occasions when the intensity of communication increases. We suggest several scenarios where such an increased intensity could be useful for a central bank, and explore whether communication does indeed intensify. Second, the paper addresses the issue whether central bank communication exerts differential effects on financial markets, depending on its timing or the circumstances. Again, various cases are suggested and tested. By combining these two approaches, it is possible to check whether they are interrelated; this would be the case, for example, if market reactions are stronger in times of more intense communication. The paper analyses three of the world's major central banks: the Federal Reserve, the Bank of England and the European Central Bank (ECB). Based on quantitative measures of communication, it identifies circumstances in which communication intensifies. This is most notably the case prior to interest rate changes, although we find more generally a higher frequency of communication in preparation of committee meetings, regardless of the upcoming decision. Beyond this, communication becomes more frequent also in other circumstances, although these differ across the three central banks. The detection of differences in the intensity of communication suggests that its timing is chosen endogenously. Based on qualitative measures of communication, the paper finds substantial evidence about time-varying market responsiveness. For example, asset returns respond significantly stronger to Federal Reserve and ECB communication prior to interest rate changes. Combining the increased frequency of communication and the stronger market responsiveness suggests that communication is a particularly important policy tool in such circumstances. Other differences exist; although they are more specific to individual central banks, they are consistent with differences in monetary policy strategies and communication policies. The paper starts by reviewing the literature on central bank communication in Section 2. Section 3 then discusses our data source. This is followed by the empirical analysis as to the timing of communication and its ability to move financial markets in Section 4. Section 5 concludes.

This paper has addressed the question whether the timing of central bank communication shows some systematic patterns. It has analysed this issue by looking at inter-meeting communication by individual committee members, the communication device that can be used most flexibly in response to changing conditions and to signal changes in views and in policy. Based on quantitative measures of communication, we identify circumstances in which communication intensifies. This is most notably the case prior to interest rate changes, although we find more generally a higher frequency of communication in preparation of committee meetings, regardless of the upcoming decision. Other findings are more heterogeneous across central banks. Communication by members of the Bank of England's MPC intensifies somewhat in times of increased market volatility, and the ECB's Governing Council members step up the frequency of communication if there is a need to explain the monetary policy decision taken in the preceding Governing Council meeting. These differences suggest that the timing of central bank communication is chosen endogenously. As the next step of the analysis, the paper asked whether financial markets attach different weights to central bank communication, depending on circumstances. Again, the findings are affirmative on this issue. Analysing the response of financial asset returns to a qualitative measure of central bank communication at a daily frequency, there is substantial evidence about changing market responsiveness, which, however, differs substantially across the three central banks. Financial markets tend to respond significantly stronger to communication prior to interest rate changes particularly for the Federal Reserve and the ECB. Considering also that the frequency of communication is increased, communication is a particularly important policy tool in such circumstances. There is also some evidence for the Federal Reserve that markets use communication to re-evaluate their expectations about the future path of monetary policy in the aftermath of interest rate changes. An interesting difference emerges when it comes to statements that are “leaning” against the current policy direction. These are more important signals than congruent statements to markets in the euro area, whereas the opposite holds true for the United States. Finally, market reactions also differ depending on the degree of uncertainty. Particularly for the Federal Reserve, there is ample evidence that markets seek more guidance from statements by FOMC members under situations of elevated uncertainty. The heterogeneity of financial market responses across the three central banks is consistent with three stylised facts. First, they reflect differences in the monetary policy strategies, in the sense that US markets attach considerably more importance to statements about the economic outlook. Second, they are also in line with differences in the communication strategies, in the sense that UK markets are much less responsive to communication overall, showing furthermore far fewer cases of differential responses according to the circumstances of communication. This confirms earlier findings of Ehrmann and Fratzscher (2006) and Reeves and Sawicki (2007-this issue), and is compatible with the views of King (2000) that central bank communication should be “boring” and not create news itself. Third, the patterns are consistent with the role that individual committee members are given in the respective communication strategies: statements that are not aligned with the current stance of monetary policy are much more influential for the ECB, where traditionally personal views play a lesser role in communication, implying that such statements are likely to reflect a consensus view and as such to convey important news about changes in the likely future stance of monetary policy. Overall, the paper suggests that there is indeed a clear and well-defined pattern that characterises the timing of central bank communication. Moreover, the empirical findings of the paper suggest the interpretation that financial markets understand the purpose of central bank communication and its timing as they respond in ways that reflect the nature of the central banks’ monetary policy strategies as well as their communication.