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Do Markets Care about Central Bank Governor Changes? Evidence from Emerging Markets
Author(s) -
MOSER CHRISTOPH,
DREHER AXEL
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2010.00355.x
Subject(s) - governor , credibility , emerging markets , central bank , financial system , monetary economics , independence (probability theory) , financial market , business , stock (firearms) , economics , foreign exchange , monetary policy , finance , political science , geography , statistics , physics , mathematics , archaeology , law , thermodynamics
Based on a new daily data set for 20 emerging markets over the period 1992–2006, we examine the reactions of foreign exchange markets, domestic stock markets, and sovereign bond spreads to central bank governor changes. We find that the replacement of a central bank governor negatively affects financial markets on the announcement day, which is in line with the hypothesis that newly appointed central bank governors suffer from a systematic credibility problem at the beginning of their tenure. We also find some evidence that changes in perceived central bank independence affect markets.