Impact Study of Central Bank Communication to Money Market Benchmark Interest Rate

In the past two decades, central bank communication as a new type of monetary policy tool has continually received attention from central banks. With the gradual advance of the market-led interest rate process, most central banks establish policy operation framework which can effectively guide and regulate the market interest rate. This article is based on the implementation of China’s monetary policy tools framework, using EGARCH model to empirically study the impact of central bank communication as a new monetary policy tool to benchmark money market rates. The result indicates: the influence of central bank communication to SHIBOR is significant, the direction of impact is in accordance with the direction of monetary policy intentions; verbal communication is more remarkable than written communication in affecting the SHIBOR; increasing the central bank of communication can dampen short-term interest rate fluctuations and can play a positive role in the financial markets.