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(WP2/2021) Effects of Monetary Policy Communication in Emerging Market Economies: Evidence from Malaysia

Publish Date: : August 2021
Authors:: Özer Karagedikli and Sui-Jade Ho

Summary

By conducting a high-frequency event study similar to Gürkaynak et al. (2005), we find that two factors are needed to adequately capture the effects of monetary policy announcements for a non-inflation targeting emerging market economy, Malaysia. These factors are the surprise changes in the policy rate (Overnight Policy Rate, OPR) and the information about the future path of monetary policy. We find that the path factor has a strong influence on long-term government bond yields, corporate bond yields and spreads. Our findings are indicative of the view that monetary policy communication is mostly about revealing information pertaining to the central bank’s assessment of the economic outlook, as opposed to an unconditional binding commitment to follow a specific policy path.

The South East Asian Central Banks (SEACEN)Research and Training Centre 198201000672 (80416-M)

 

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