Verbal Interventions As an Instrument of the Central Bank of Russia

In this paper, we analyze the impact of the Bank of Russia (the BoR) verbal interventions on Russian stock and exchange markets using intraday and daily data from 2014 to 2015. Although the BoR has recently switched to the Infation Targeting policy (IT) and started to apply verbal interventions, this direction of Russian monetary policy has not yet obtained much attention in academic literature. Thus, we fill this gap in the literature and analyze the effectiveness of the Bank of Russia communication. The purpose of this research is to evaluate whether the Bank of Russia is able to move stock and exchange markets in the desired way with the help of verbal interventions. Firstly, we construct informational index, which reflects the direction and the magnitude of the Bank of Russia verbal interventions. Secondly, we analyze intraday stock and exchange data in order to detect intraday seasonality and eliminate it. Finally, we estimate valuation movements of financial indicators with respect to the verbal interventions of the BoR estimated using GARCH models. The conducted research let us to conclude that the verbal interventions of the Bank of Russia did not affect Russian stock market, but had a significant impact on exchange rates before the BoR had switched to IT policy. Under IT policy the Bank of Russia communication has no significant effect on exchange rates, that might be associated with strong macroeconomic shocks such as sanctions against Russian economy or abrupt decrease in oil prices.