Central Bank Optimism as a Policy Tool: Evidence from the Bank of England

Tola Adesina
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Tola Adesina: Birkbeck, University of London

No 1708, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We evaluate the tone of optimism in the Bank of England’s Monetary Policy Committee (MPC) communication using computerised textual analysis and then explore the impacts of optimism shocks on key macroeconomic variables. We show that innovations in optimism impact key macroeconomic variables in the same way that a contractionary monetary policy would. We find that increasing optimism shocks in MPC communication leads to rising inflation, falling output, declining stock market returns and a rise in the Pound value. We further find evidence that optimism shocks reduce credit availability, the money supply, retail sales as well as earnings. Finally, government bond yields also tend to rise in response to optimism shocks.

Keywords: Central Bank Communication; Monetary Policy; Optimism. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://eprints.bbk.ac.uk/id/eprint/26859 First version, 2017 (application/pdf)

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