Starting from a Blank Page? Semantic Similarity in Central Bank Communication and Market Volatility

Michael Ehrmann and Jonathan Talmi ()

Staff Working Papers from Bank of Canada

Abstract: Press releases announcing and explaining monetary policy decisions play a critical role in the communication strategy of central banks. Because of their market-moving potential, it is particularly important how they are drafted. Often, central banks start from the previous statement and update the earlier text with only small changes. This way, it is straightforward to compare statements and see how the central bank’s thinking has evolved. This paper studies to what extent such similarity in central bank statements matters for the reception of their content in financial markets. Using the case of the Bank of Canada (the G7 central bank that had to rely the least on unconventional monetary policy following the global financial crisis and has therefore broadly continued standard monetary policy communications), the paper shows that press releases with larger differences in wording lead to higher volatility in financial markets, suggesting that their content is more difficult to absorb. At the same time, while press releases that are similar to the previous one generate less market volatility, once their wording is updated, volatility increases substantially.

Keywords: Central bank research; Financial markets; Interest rates (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-cse, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Starting from a blank page? Semantic similarity in central bank communication and market volatility (2020)
Working Paper: Starting from a blank page? Semantic similarity in central bank communication and market volatility (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-37

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