But does a change in Fed leadership mean anything for the markets? A study from 2008 asks just that, considering the market implications of a new central bank governor. The researchers find that market reaction will vary between economies and political structures, but one observation, among others, is the constant that inflation expectations remain similar no matter who the new central bank head is. This suggests that central bank governors are far more like-minded in their approaches than they are different.
This paper assesses the effects of central bank governor appointments on financial-market expectations of monetary policy. To measure these effects, we assemble a new dataset of appointment announcements from 15 countries and conduct an event-study analysis on exchange rates, bond yields, and stock prices. Our main findings are threefold. First, exchange rates and bond yields display a statistically significant response to the announcement of a new governor, especially when the appointee’s identity was not anticipated in advance. Second, the reactions are especially pronounced for central banks lacking either independence or a clear nominal anchor. Third, new governors are not generally perceived to lack credibility: there is no tendency for announcements to be associated with jumps in inflation expectations.