Monetary Policy Uncertainty in Mexico: An Unsupervised Approach

Carlos Moreno Pérez and Marco Minozzo ()
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Marco Minozzo: University of Verona

No 2229, Working Papers from Banco de España

Abstract: We study and measure uncertainty in the minutes of the meetings of the board of governors of the Central Bank of Mexico and relate it to monetary policy variables. In particular, we construct two uncertainty indices for the Spanish version of the minutes using unsupervised machine learning techniques. The first uncertainty index is constructed exploiting Latent Dirichlet Allocation (LDA), whereas the second uses the Skip-Gram model and K-Means. We also create uncertainty indices for the three main sections of the minutes. We find that higher uncertainty in the minutes is related to an increase in inflation and money supply. Our results also show that a unit shock in uncertainty leads to changes of the same sign but different magnitude in the inter-bank interest rate and the target interest rate. We also find that a unit shock in uncertainty leads to a depreciation of the Mexican peso with respect to the US dollar in the same period of the shock, which is followed by appreciation in the subsequent period.

Keywords: Central Bank of Mexico; central bank communication; Latent Dirichlet Allocation; monetary policy uncertainty; Structural Vector Autoregressive model; Word Embedding (search for similar items in EconPapers)
JEL-codes: C32 C45 D83 E52 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2022-08
New Economics Papers: this item is included in nep-big, nep-cba, nep-inv and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2229

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