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The Babel Effect: Central Banks, Multilingual Communications, and Submarket Expectations

Mon, May 29, 15:30 to 16:45, Hilton San Diego Bayfront, Floor: 4, Sapphire 410A

Abstract

In a decades-long effort to increase their efficacy, central banks now communicate their monetary policy intentions with greater frequency and trans- parency than ever before. Scholars theorize that this increased flow of informa- tion influences market outcomes because banks act as credibility leaders: sin- gle sources of truth to which markets react. But credibility leader theories break down when applied to central banks abroad, which release multiple streams of information—one in English, for the world, and one or more in their country’s common language or languages. As such, central banks may influence market expectations by sending different signals to international and domestic players (regardless of intention), a route termed the “babel effect.” In this paper, I seek ev- idence of this previously un-noted market manipulation mechanism using a novel dataset of more than 8,000 international central bank communications developed to discern differences among matched press releases in different languages. The findings are important because they suggest unexplored routes through which central banks might be able to influence economic and political outcomes.

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