Using data from a global survey, the authors explain how financial market participants process news from central banks—namely, the Federal Reserve, the Bank of Japan (BoJ), the European Central Bank (ECB), and the Bank of England (BoE).

First, the authors find that participants rely more on media reporting than on self-monitoring to learn about the actions of central banks. The exception is a central bank interest rate decision in the survey respondent’s home region, which prompts self-monitoring. The authors also find that the general attention level is higher for interest rate decisions than for speeches and that the Fed is the most closely monitored, followed by the ECB, the BoJ, and the BoE.

Second, they find that market participants perceive interest rate decisions to have a more persistent impact (up to about a month) on financial markets than speeches.

Finally, participants view media coverage as generally reliable, although some respondents have reservations regarding the quality of media coverage.

The authors explain the complexity involved in the economic impact of central bank actions and communications. They focus on the way the media shape the perception of central bank actions, thereby refining the standard approach, in which the focus is on the direct impact of central bank actions. For market participants, a refined model of the economic effects of central bank actions is critical for planning and investment decision making. A model that explains how central bank actions are transmitted into economic outcomes is critical not only for short-term trading but also for longer-term investment strategy and planning.

The authors’ analysis is based on a Barclays survey of 195 market participants from financial institutions around the world. The participants consist of 24 asset allocators, 70 traders, and 101 portfolio managers.

First, the authors study (1) how financial agents monitor central bank actions and communications, (2) how financial agents perceive the persistence of the impact of central bank news on financial markets as a proxy for the relative importance of this news, and (3) how financial agents evaluate the reliability of media coverage of central bank actions and communications.

Second, using a multivariate framework, they model the relationship between (1) the two types of central bank monitoring and (2) the perceived importance of central bank events and the reliability of media coverage. The authors use ordered probit models to estimate four left-hand-side variables: self-monitoring of interest rate decisions, self-monitoring of speeches, reliance on media reports to follow central bank actions, and reliance on media reports to follow central bank communications.

In the authors’ model, the explanatory variables are the perceived market persistence of the impact of interest rate decisions and speeches and the reliability of media coverage. They estimate separate models for three groups of market participants—asset managers, traders, and portfolio managers—to test whether there are differences among these groups.

This article is a clearly structured and narrated addition to the toolkit of both the avid central bank watcher and the investment strategist. The authors’ findings reinforce a number of widely shared views—for example, the fact that the Fed is the most followed central bank. They also refine the conversation on how central bank actions affect the actions of market participants by introducing the concept of perception. An annual reprise of such a useful survey and analysis would be welcome.