Money Talks: How Foreign and Domestic Monetary Policy Communications Move Financial Markets

We provide novel insights into how foreign and domestic monetary policy communications, beyond rate announcements, affect the financial markets of open economies. We construct a high-frequency dataset that documents the impact of Federal Reserve (Fed) and Bank of Canada (BoC) rate announcements, speeches, press conferences and minutes releases to Canadian financial markets between 1997 and 2023. We find that non-rate announcements are a significant source of domestic monetary policy surprises and international spillovers. Across event types, Fed communications are particularly influential for long-term interest rates and stock futures while BoC communications matter more to short-term interest rates. Since BoC communications have little effect on U.S. interest rates, Canadian announcements have a greater impact on the CAD/USD exchange rate by inducing larger changes in the cross-country interest rate differential.