Wordle for Central Bankers: Separating Impact of Words and Actions Under High Inflation– The Case of Turkey

ABSTRACT

This paper investigates the effectiveness of monetary policy in Turkey, i.e. a developing country with high inflation, through its impact on the local currency denominated sovereign yield curve. Employing a two-factor, market-based methodology and introducing a new dataset, the study calculates the surprise factor for both actions (monetary policy surprise) and words (communication surprise). Checking their impacts separately, the study finds evidence that the communication provided by the Central Bank of Turkey through Monetary Policy Committee Statements help to extend the impact of the monetary policy to the long end of the yield curve, even during periods of high inflation.

KEYWORDS:

• Central banking
• monetary policy
• monetary policy communication
• central bank communication
• monetary policy surprise

JEL Classification:

• E52
• E58
• E43
• E44
• E61

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Supplementary Material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/00128775.2022.2097094

Notes

¹ Author’s own calculation from country data.