Bank of Russia regular communications and volatility short-term effects in financial markets

Abstract

This paper investigates the relationship between the volatility of various indicators of the Russia financial markets and the communication policy of the Bank of Russia, namely, regular communications channel – press releases and press conferences following the meetings of the Board of Directors of the Bank of Russia. The use of these two channels of regular verbal interventions aims not only to familiarize market participants with the decision on the key rate adopted during the meeting, but also to describe the reasons for this decision, along with a brief description of the current state of the economy in the way the regulator observes it. The results of econometric analysis using HAR‑models of high-frequency 5-minute volatility, taking into account intraday volatility patterns, show that regular communications of the Bank of Russia (namely, press releases following a meeting of the Bank of Russia Board of directors) really increase volatility in financial markets, while market participants cannot instantly estimate the significance of the new information, while this process takes about 15–20 minutes. However, the effect of increasing volatility is practically insignificant statistically when it comes to press conferences of the Governor Elvira Nabiullina. This result may indicate almost complete absence of new information for the market participants, disclosed during the opening speech at the press conference and the Q&A session. Also, within the framework of the study, recommendations were formulated for the Bank of Russia to change the format of regular communications.