Financial market reaction to Federal Reserve communications: Does the global financial crisis make a difference?

This paper studies the effects of Federal Reserve communications on US financial market returns from 1998 to 2009 and asks whether they changed significantly during the global financial crisis of August 2007 to July 2009. We find, first, that central bank communication moves financial markets in the intended direction. In particular, shorter maturities are affected in an economically meaningful way. Second, speeches by the chairman generate relatively larger market reactions than communication by other governors or presidents. Finally, central bank communication is even more market relevant during the subsample covering the global financial crisis.