"Clear and Direct Remarks by Governor Lee Changyong Have Significant Impact on Financial Markets," Study Finds

It has been demonstrated through research that statements made by Lee Changyong, Governor of the Bank of Korea, during press conferences held immediately after key interest rate decisions have had a significant impact on financial markets. The study found that the bond market was distinctly affected depending on whether Governor Lee's tone was hawkish (favoring monetary tightening) or dovish (favoring monetary easing). Analysts believe that, unlike his predecessors, Governor Lee's clear and direct communication style has elicited sensitive reactions from the market.

The research team emphasized, "The role of the Bank of Korea goes beyond simply adjusting the base interest rate; it shows that policy effectiveness can be maximized through communication with the market." They added, "Clear communication can enhance market predictability and help maintain financial market stability."

Yonhap News Agency

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According to the Bank of Korea on October 1, a research team including Yu Gakjun (Seoul National University School of Law) and Cho Dooyeon (Professor of Economics at Sungkyunkwan University) published a paper in the Bank of Korea Economic Research Institute’s journal, 'Economic Analysis,' the previous day, titled 'An Analysis of the Impact of the Bank of Korea Governor’s Monetary Policy Communication on Financial Markets: Focusing on Sentiment Analysis.' The paper examined the content of the Governor's press conferences immediately following key interest rate decisions from August 2008 to July 2023 and analyzed the resulting impact on financial markets. The research team compared the volatility of the stock, bond, and foreign exchange markets at three points in time: during the 40 minutes immediately after the base rate announcement, during the press conference, and one week prior to the press conference.

The results showed that bond market volatility increased significantly both immediately after the base rate announcement and during the press conference, while volatility in the stock and foreign exchange markets did not rise as much. By period, during the tenures of former Governors Lee Seongtae and Lee Juyeol, as well as under Governor Lee Changyong, bond market volatility during press conferences was more than 7 to 15 times higher than usual. In contrast, under former Governor Kim Choongsu, it was only about 4.2 times higher. The research team explained, "This may be related to the fact that, rather than the interest rate level itself, there was relatively higher market interest in the Bank of Korea's economic outlook and future policy direction."

Separately, the research team quantified the monetary policy tone of the press conferences, assigning a value closer to 1 for a hawkish tone and closer to -1 for a dovish tone, and analyzed its correlation with bond yield volatility. The analysis found that during the tenures of former Governors Kim Choongsu and Lee Juyeol, the tone of the press conferences did not have a statistically significant impact on the bond market. During former Governor Lee Seongtae’s tenure, although volatility was high due to the financial crisis and other factors, the tone of the press conferences itself did not have a significant influence.

In contrast, under Governor Lee Changyong, not only did market volatility increase compared to previous periods, but the tone of his press conferences was found to have a relatively clear effect on bond yields. The research team explained, "Governor Lee has been recognized since the beginning of his tenure for expressing the basis for monetary policy and future policy direction in a clear and direct manner during press conferences on monetary policy direction, unlike his predecessors. As a result, the market may have responded sensitively to the content of Governor Lee’s press conferences."

This study is the first case of research examining the impact of the Bank of Korea Governor’s press conference content on the financial market. The research team stated, "Although there have been previous analyses of the Bank of Korea Monetary Policy Board minutes, this is the first domestic study to examine the connection with financial markets, such as the bond market, through a tone analysis based on press conference texts." They added, "This suggests that the Bank of Korea’s communication can also serve as an effective tool for monetary policy."

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