Why do markets react to words?

Abstract

2014),"First steps into the metaphoric wilderness of macroeconomics", On the Horizon, Vol. 22 Iss 4 pp. 229-238 http:// dx.Access to this document was granted through an Emerald subscription provided by emerald-srm:198285 [] For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to explain why central banking as a practice needs to be based on everyday language and communication because a central bank must be able to act flexibly. The meaning of a central bank's language and communication is not a linear transferred meaning from the sender to the receiver. Language is not the gateway to transmitting a pre-given meaning. Whereas the meaning of a coded language is rooted in a pre-defined system independent of changing environment and context, everyday language is not. Expectation-building cannot be anchored in an artificial system such as formal language, codes and deductive premises based on formal language. In guiding expectations of economic agents, a central bank is a part of its own context through the language it uses in both its communication and in its policy of information disclosure concerning its own risk assessment. Design/methodology/approach -The paper explains the constitutive function of language for common understanding in central banking and monetary policy. Findings -The paper contributes to the literature on central bank communication and transparency.Originality/value -The interaction between the markets and the central bank is understandable within a particular history and context which also helps to build up or to restore confidence in monetary transactions and relations.

Central Bank Transparency as a Dialogical Accomplishment

“…It is based on an idea of transmitting a ready‐made signal that moves in a single direction from the sender, the bank, to the receiver, the public. This has been severely criticized by Muchlinski (, ) who argued that “[m]onetary policy can neither be explained by a linear input‐output‐transmission nor by pure deductive arguments based on a formal language” (Muchlinski :323). She insisted that central bank communication is not a linear process, but an interactive one.…”