Three Essays on Central Banking
Abstract
This dissertation comprises three chapters focused on the conduct of monetary policy. Specifically,
I use a blend of empirical and experimental research methods study unconventional monetary
policy alternatives, to quantify the effect of information flow on markets, and to examine the
efficacy of emergent changes in central bank communication.
Chapter one of this dissertation introduces an experimental framework that serves as a test-bed
for both monetary and fiscal policies. This framework allows policymakers and academics to generate
data regarding the efficacy of policy alternatives in a relatively low-cost, safe, and controlled
environment. To validate this experimental framework, we explore two policy alternatives in a
constrained policy environment: allowing a central bank to use negative nominal interest rates and
permanently increasing the inflation target. Our findings indicate that negative interest rates can
effectively stimulate demand, consistently. closing an output and employment gaps. However,
permanently increasing an inflation target cannot.
Chapters two and three of this dissertation focus on central bank communication. Chapter two
uses a high-frequency identification approach to quantify the effect of information flow on financial
markets in the United Kingdom. Specifically, we study whether and how the U.K.’s yield curve
responds to communication from the Bank of England (BoE) about the forecast uncertainty and
balance of risks surrounding both inflation and output growth. We find that yields respond at least
as strongly to this higher-order information as they do to information about the BoE’s expected
paths for inflation and output growth. Chapter three describes an experiment in which we study
how uncertainty in central bank communication influences individual expectations formation and
individual forecast uncertainty. We find that reducing the precision of central bank communication
by including uncertainty can reduce the coordinating power of projections and increase individual-level uncertainty.
Citation
Rholes, Ryan Austin (2021). Three Essays on Central Banking. Doctoral dissertation, Texas A&M University. Available electronically from https : / /hdl .handle .net /1969 .1 /193156.